GNANAMBIKAI MILLS LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) AT the instance of the assessee, the Tribunal referred the following question of law for the opinion of this court under section 256(1) of the Income-tax Act, 1961 :

(2.) THE assessee had taken a long-term loan for investing in machinery imported from abroad. Since the repayment of the loan and interest had to be done in foreign exchange and the rate of exchange was fluctuating the assessee had incurred an extra amount of Rs. 49,108 towards payment of principal and Rs. 2,315 towards payment of interest in the previous year ended December 31, 1977. THE assessee claimed that this difference in exchange value should be allowed as a revenue deduction in computing the total income for the assessment year 1978-79. THE Revenue contended that this expenditure was capital in nature and could not be allowed to be deducted. THE Tribunal applied the decision of the Madras High Court in CIT v. South India Viscose Ltd. and held that the claim of the assessee to deduct the expenditure as revenue expenditure was rightly disallowed.