COMMR. OF INCOME TAX vs. M/S OSWAL SPINING & WEAVING MILLS

ITA/12/2005HC Punjab & HaryanaPHHC01079878200508 May 2012Author: MR. JUSTICE AJAY KUMAR MITTAL,MR. JUSTICE GURMEET SINGH SANDHAWALIA8 pages
AI SummaryDismissed

What were the facts?

The Revenue (Commissioner of Income Tax, Ludhiana-II) appealed against an order of the Income Tax Appellate Tribunal (ITAT) for the assessment year 1994-95. The assessee, M/s Oswal Spinning and Weaving Mills Limited, had declared a total loss. The Assessing Officer disallowed depreciation on the enhanced value of machinery due to foreign exchange fluctuation on loans taken for its purchase, stating depreciation is only allowable upon actual payment. The CIT(A) initially upheld this but later rectified the order, allowing the claim by referring to Section 43A. The ITAT dismissed the Revenue's appeal, upholding the CIT(A)'s order, noting that the amendment to Section 43A effective from 1.4.2003 was not applicable to the assessment year 1994-95.

What did the High Court hold?

The High Court held that the amendment to Section 43A of the Income Tax Act, 1961, by the Finance Act, 2002, effective from 1.4.2003, was amendatory and not clarificatory. This means it applied prospectively. For assessment years prior to 1.4.2003, the unamended Section 43A governed. Under the unamended section, adjustment to the actual cost of an asset due to exchange rate fluctuation occurred upon the happening of the change in the rate of exchange, not necessarily upon actual payment. The Court noted that the Supreme Court in Woodward Governor India (P) Limited's case had held that the unamended section did not require actual payment as a condition precedent for adjustment. Therefore, the assessee was entitled to claim exchange rate fluctuation in the assessment years in question as they followed the mercantile system of accountancy. The judgments relied upon by the Revenue were found not to advance their case due to differing fact situations. The substantial question of law was answered against the Revenue.

What were the issues?

1. Whether the Tribunal was correct in law in holding that the value of a capital asset would be notionally enhanced due to foreign exchange fluctuation at the end of each financial year and not at the time of payment during the year, concerning Section 43A of the Income Tax Act, 1961. Assessee's Contentions: The assessee argued that the ITAT's order should be upheld. They relied on the Supreme Court judgment in Commissioner of Income Tax v. Woodward Governor India (P) Limited, this Court's decision in CIT v. Arihant Cotsyn Limited, and the Calcutta High Court's ruling in Century Enka Ltd v. Assistant. Revenue's Contentions: The Revenue contended that the benefit of exchange rate fluctuation should not be allowed unless the amount was actually paid. They cited Supreme Court decisions in Commissioner of Income Tax v. Lucas T.V.S.Limited and Assistant Commissioner of Income Tax v. Elecon Engineering Co. Limited, and a Karnataka High Court judgment in Commissioner of Income Tax v. Wipro Finance Limited. The Revenue also argued that Section 43A, amended by the Finance Act, 2002, was clarificatory and thus applicable to assessment years prior to its effective date.

Which sections of the Income-tax Act were involved?

Section 43A,Section 260A,Section 43(1),Section 35,Section 35A,Section 36,Section 50,Section 48

AI-generated summary — verify with the full judgment below

ITA No.12 of 2005 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 12 of 2005 Date of decision: 08.05.2012 Commissioner of Income Tax, Ludhiana-II -----Appellant Vs. M/s Oswal Spinning and Weaving Mills Limited, GT Road, Ludhiana ----Respondent CORAM:- HON’BLE MR. JUSTICE AJAY KUMAR MITTAL HON'BLE MR. JUSTICE GURMEET SINGH SANDHAWALIA Present:- Ms. Savita Saxena, Advocate for the appellant. Mr. H.O.Arora, Advocate with Mr. Rajiv Sharma, Advocate for the respondent. Ajay Kumar Mittal,J.

1.

This order shall dispose of ITA Nos.222 of 2004, 12 and 13 of 2005 and 924 of 2008 as learned counsel for the parties are agreed that identical facts and questions of law are involved in all these appeals. However, facts are being taken from ITA No.12 of 2005. 2. ITA No.12 of 2005 has been preferred by the revenue under section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 30.1.2004 passed by the Income Tax Appellate Tribunal, Chandigarh Bench 'B', Chandigarh (for brevity, “the ITAT”) in ITA No.826/Chandi/1998, for the assessment year 1994-95. It was admitted for determination of following substantial question of law:- “Whether the Tribunal w

The order continues below.

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