Case Law Details
Continuum Wind Energe (India) Pvt. Ltd. Vs DCIT (Madras High Court)
Conclusion: Amount paid towards the premium for hedging foreign exchange fluctuations was capital loss as exchange difference was required to be capitalized because liability had been incurred by assessee for the purpose of acquiring fixed asset namely plant and machinery.
Held: Assessee had file an appeal challenging the dis allowance of the premium paid on forward contract on reasoning that the premium paid on forward contracts was to be considered as speculative transaction under Section 43(5). Assessee contended that the foreign exchange fluctuation on the loan taken for the purpose of the assessee’s business could not have been brought under Section 43A, which was a special provision consequential to change in rate of exchange of currency, which would be applicable when the assessee acquired any asset in any previous year from a country outside India. Admittedly, the assessee did not purchase any asset in any previous year from any country outside India and this aspect was noted by the CIT(A) its order. However, before the Tribunal, assessee made an alternate submission because the Tribunal appeared to have come to a conclusion that the loss suffered by assessee was a capital loss. The alternate submission was that if it had to be treated as a capital loss, then assessee was entitled to the benefit of depreciation. It was held that the exchange difference was required to be capitalized because liability had been incurred by assessee for the purpose of acquiring fixed asset namely plant and machinery. Referring to the amendment to Section 43A by the Finance Act of 2002, the loan given as for capital expenditure on modernization and expansion, the fact that the exchange fluctuation had been added on to the cost under Section 43-A(1), however, did not, lead to the inference that as far as the balance amount was concerned, the interest payment difference on exchange fluctuation would fall under Revenue head. The court while answering against assessee held that if any part of the loan was not used for the purchase of a capital asset, the corresponding loss had to be treated as a capital expenditure.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
We have heard Mr.R.Sivaraman, learned counsel appearing for the appellant – assessee and Mr.T.Ravikumar, learned Senior Standing Counsel appearing for the respondent – Revenue.
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