COMMISSIONER OF INCOME TAX Vs. SANDOZ INDIA LIMITED

JUDGEMENT

(1.) BY this reference under section 256(1) of the Income -tax Act, 1961, the Income -tax Appellate Tribunal, at the instance of the Revenue, has referred the following questions of law to this court for opinion :

(2.) THE assessee is a company. It entered into an agreement of loan with a Swiss company Sandoz (India) Ltd. which was repayable in Swiss francs in Switzerland. The loan was specifically taken for the purpose of purchasing capital goods and as per the terms of the agreement the assessee was bound to utilise the borrowed money only for such purpose. The assessee was also required to furnish a list of plant and machinery, etc., required with the loan money to the lender. The above loan was obtained by the assessee from the foreign company with the approval of the Central Government. The remittance of the amount of the loan to India was also with the approval of the Central Government. The admitted position is that the amount of loan was utilised in terms of the agreement for the purchase of capital goods. A major part of the amount was utilised for purchase of plant and machinery from outside India and the balance for purchase from within India. The full amount of loan was thus utilised by the assessee for acquisition of plant and machinery.

(3.) LEARNED counsel for the Revenue submits that this case is fully covered by the decision of this court in Income -tax Reference No. 122 of 1980 decided on July 15, 1993 CIT v. V.S. Dempo and Co. Pvt. Ltd. : [1994]206ITR291(Bom) . Learned counsel for the assessee does not dispute the above submission of learned counsel for the Revenue. He, however, submits that the above decision needs reconsideration in view of the decision of the Supreme Court in India Cements Ltd. v. CIT : [1966]60ITR52(SC) . According to the assessee, the loan in question having been raised for the purpose of business, the expenditure in repayment of the same is a revenue expenditure notwithstanding the fact that the loan was utilised by the assessee for acquiring capital assets. The contention of the assessee, in other words, is that the fact that the loan was obtained and utilised for purchase of capital assets is of no relevance in determining the nature of the loss arising on account of increase in the loan liability due to exchange fluctuation.