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Exchange fluctuation loss while repaying loan is a revenue expenditure

Citation : Wipro Finance Ltd. vs Commissioner Of Income Tax, Civil Appeal No. 6677 Of 2008

Date of Judgment/Order : April 12, 2022

Court/Tribunal : The Supreme Court Of India

Corum : A.M. Khanwilkar; J., Abhay S. Oka; J., C.T. Ravikumar; J.

Background

The appellant company submitted returns of income on for the assessment year 1997-1998 , mentioning loss of income, amongst others, owing to exchange fluctuation of Rs.1,10,53,909/-. After processing the return under Section 143(1)(a) of the Income Tax Act, 1961, the assessment was completed on 16.3.2000. As against the loss declared by the appellant due to exchange fluctuation, the assessment was concluded by positive taxable income. Against that decision, the matter was carried in appeal by the appellant before the Commissioner of Income Tax (Appeals) and eventually, by way of appeal before the Income Tax Appellate Tribunal.

The ITAT decided in favour of the appellant but the decision was overturned by the High Court and the matter came to the Supreme Court.

Judgment

The Supreme Court agreed with ITAT. The Tribunal had referring to judgements in India Cements Ltd. vs. Commissioner of Income Tax Madras AIR 1966 SC 1053 , Empire Jute Co. Ltd. vs. Commissioner of Income Tax (1980) 4 SCC 25  & National Thermal Power Co. Ltd. vs. Commissioner of Income Tax had observed that :-
  1. The funds borrowed were utilised for the purposes of regular finance business carried on by the assessee. Such an income has also been offered for taxation and accepted by the department. Quantification of exchange fluctuation loss has been done as per rule 115 of the I T Rules. Said rule must be applied in computing the total income of the assessee had held by the Supreme Court in CIT vs. Chowgule Co Ltd.
  2. Further the exchange fluctuation loss is an expenditure incidental to carrying on of business and comes within the purview of section 37 of the Act as the same is incurred wholly and exclusively for the purposes of business. It is nobody’s case that the funds borrowed in foreign exchange have been diverted for non-business purposes.
  3. In this case entire borrowal of loan and the utilisation of the same, is in trading operations of the company more profitably and the fixed capital in this case is untouched. Hence the expenditure is on revenue account and allowable.

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