ARVIND MILLS LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessment year involved in this reference is assessment year 1967 -68, the relevant previous year being the calendr year 1966. The assessee is a public limited company. It runs a textile mill. In order to expand its spinning capacity and to renovate and modernnise some of the sections of the mill, the assessee negotiated to import machineries from various foreign countries. The purchase price of such machinery was determined in foreign currencies and the payment therefor had to be made in such currencies. In order to enable it to make payment accordingly, the assessee entered into an agreement with the Industrial Credit and Investment Corporation of India Ltd. (ICICI) on June 25, 1965, where -under the ICICI agreed to lend to the assessee the requisite foreign currencies at agreed intervals and the assessee agreed to repay the loan in the same currencies in agreed instalments commencing from June 1, 1967. In the calendar years 1965 and 1966, the assessee acquired and installed some of the imported machineries in its textile unit. Some time in the middle of the relevant previous year, that is to say, on June 6, 1966, there was devaluation of the Indian rupee. As a result of the devaluation, the liability of the assessee in respect of the repayment of the instalments of loans borrowed by it from the ICICI for acquiring and installing the machineries in the calendar years 1965 and 1966 increased by Rs. 13,41,158 and an entry to that effect was made in the machinery account in the books of account of the assessee which were maintained according to the mercantile system.

(2.) IN the course of the proceedings for assessment to income -tax for the relevant assessment year, the assessee contended that the actual cost of the machinery to the assessee had increased on account of devaluation and that the whole of the additional liability incurred by it as aforesaid was required to be taken into account for the purpose of allowing depreciation allowance and that for the purpose of allowing development rebate the additional liability to the tune of Rs. 8,67,437, which was relatable to the machineries acquired in the calendar year 1966 (previous year) was required to be taken into account. The Income -tax Officer, while allowing the claim for depreciation allowance, took into account the whole of the said additional liability. However, so far as the claim for development rebate was concerned, the Income -tax Officer totally ignored the same.

(3.) ON further appeal carried by the assessee, the Income -tax Appellate Tribunal concurred in the decision given by the lower authorities. It held that the additional liability incurred by the assessee could not be taken into account for the allowance of development rebate inasmuch as : (i) the machineries were acquired before devaluation and additional liability subsequently arising on account of devaluation could not add to the original cost of acquisition; (ii) no instalment of loan was repayable in the year of account and the question of recomputation of the cost of the machinery in view of the additional liability did not arise; (iii) the additional liability could not be taken into account as it was not relatable to the cost of the acquisition of machineries but to repayment of loan taken form the ICICI; and (iv) section 43A, which was a specific provision dealing with increased and decreased liability on account of devaluation, permitted such factor to be taken into account only for allowance of depreciation allowance and excluded it from consideration so far as development rebate was concerned. As an alternative contention, the assessee had also urged before the Tribunal that the additional expenditure which it had to incur on account of devaluation ought to have been allowed as revenue expenditure under section 37 of the Act. The Tribunal rejected even this alternative contention and dismissed the appeal.