PERIYAR CHEMICALS LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) The Income Tax Appellate Tribunal, Cochin Bench has referred the following questions to this court under S.256(1) of the Income Tax Act:

(2.) The assessee is a public limited company carrying on the business of manufacture and sale of chemicals. The company imported machinery for its formic acid plant from Germany and for that purpose it had availed of foreign currency loan of Doutsche Marks 7,36,855-02 (equal to Rs. 16,53,818.63 in Indian currency) from a German Company by name "Karl Fischer Ltd." through the Industrial Credit and Investment Corporation of India Ltd. The loan was to be repaid in German currency in instalments spread over a number of years. At the time when the loan was taken the exchange rate was Rs. 2-258 for one Doutsche Mark. During the accounting year ending on 30-6-1975 the assessee had paid an instalment of 1,13,700 Doutsche Marks. At the exchange rate prevailing on the date of the loan, the instalment paid during the accounting period would have worked out at Rs. 1,68,737/-. But on account of fluctuation in the exchange rate the assessee had to pay Rs. 2,40,574/-. The assessee debited the excess amount of Rs. 81,837/- paid in its profit and loss account and claimed the said sum as a revenue deduction. The Income Tax Officer rejected the claim on the ground that it was a capital expenditure.

(3.) In computing the capital employed for the purpose of ascertaining the deduction permissible under S.80J, the Income Tax Officer excluded from the aggregate value of the assets a sum of Rs. 43,59,539/- made up of secured loans, unsecured loans and current liabilities. The assessee's claim for relief under S.80J in respect of Rs. 5,59,689/- being the value of the work-in-progress was also rejected. The Income Tax Officer did not accept the assessee's claim for inclusion of the pre-commissioning expenses and the payment made for the process know-how in the total cost of the assets in the computation of depreciation permissible under S.32 of the Act.