COMMISSIONER OF INCOME TAX Vs. PHILLIPS PETROLEUM INTERNATIONAL

JUDGEMENT

(1.) AT the instance of the Revenue under s. 256(2) of the IT Act, 1961, the following two questions have been referred by the Tribunal :

(2.) THE assessee is a non -resident corporation having its headquarters in the Republic of Panama and a branch office at According to the agreement, the assessee was entitled for fees in Indian rupees equivalent to 2.6 US cents per barrel of crude oil produced by the Indian company. Out of the technical fees received, a part was converted into US dollars and remitted abroad to the account of the assessee. Though, according to the technical service agreement, the assessee was paid fees in Indian rupees equivalent to 2.6 US cents per barrel of crude oil, the assessee purportedly incurred loss in getting the rupees converted into dollars for the purpose of remittance. The assessee claimed a loss of Rs. 77,986 and claimed the same as exchange loss by way of business expenditure. However, the ITO denied the same against which, the appeal was preferred by the assessee before the AAC. The AAC deleted the addition of Rs. 77,986, against which the 1979, the Tribunal upheld the said deduction and confirmed the order made by the AAC.

(3.) ON behalf of the Revenue, it is contended that the exchange loss is capital in nature as it arose after income was already received in India. As per the agreement, the amount was paid in Indian rupees equivalent to 2.6 US cents per barrel. It is after receipt of the amount the same was converted into US dollars. The contract provided for the payment, however, the same was to be made in Indian rupees. The agreement is also clear that the amount is to be paid in Indian rupees equivalent to 2.6 US cents per barrel. Thus the amount was paid keeping in mind the exchange rate, on the date of payment.