The Chartered Accountant

LEGAL UPDATE
LEGAL DECISIONS 1
Direct Taxes
Section 43A of the Income-tax Act, 1961 — Special Provisions consequential to Changes in rate of Exchange
of Currency [Assessment Year 1993-94]
For claiming deduction on account of foreign exchange rate fluctuation factual position is required
Commissioner of Income Tax, Rajkot v. M/s Gujarat Siddhi Cement Ltd. (Supreme Court) 17 October, 2008
The respondent/assessee claimed increased amount
as deduction as investment allowance on account of
increase in the cost of plant and machinery on account
of exchange rate fluctuation. The assessing officer
disallowed the claim on the ground that plant and
machinery in respect of which there has been increase
were installed in the earlier years. On appeal, the Commissioner
upheld by the order of the Assessing Officer
on the ground that no arguments were advanced and
no factual details were furnished regarding the alleged
fluctuation on account of foreign exchange rate.
The Supreme Court held that on a bare reading of
the provisions of Section 43A(1) the position is clear
that it relates to the fluctuation in the previous year
in question. If any extra benefit is taken the same has
to be taxed in the year when the liability is reduced as
provided in terms of Section 41(1)(a) Explanation 2.
Therefore, whenever there is fluctuation in any previous
year, Section 43A (1) comes into play.
On facts, the Court held that it would be appropriate
to grant opportunity to the assessee to establish
the factual position relating to fluctuation in foreign
exchange rate. The matter was therefore, remitted to
the Tribunal to consider whether assessee is justified
in claiming deduction in the background of Section
43A(1) as it stood then.
The appeal was disposed of.
Section 80-HH read with Section 80-I of the Income-tax Act, 1961 — Deductions – Profits and gains from
newly established industrial undertakings or hotel business in backward areas
Deduction under Sections 80-HH and 80-I is allowable as ship breaking activity gives rise to production of a
distinct and different article
Section 195 of the Income-tax Act, 1961 – Deduction at source – Other sums
Usance interest is exempt from payment of income tax if paid in respect of ship breaking activity and thus assessee
was not bound to deduct tax at source under section 195(1)
Vijay Ship Breaking Corporation & Ors. v. Commissioner of Income Tax, Ahmedabad (Supreme Court) 1 October, 2008
Issues before the Supreme Court were: (1) Whether
appellant-assessee was entitled to deduction under
Sections 80-HH and 80-I in respect of ship breaking
activity undertaken by it and (2) Whether ‘usance
interest’ partakes of the character of purchase price
and, therefore, not liable to deduction at source under
Section 195(1).
As regards to deduction under Sections 80-HH and
80-I the Supreme Court held that ship breaking activity
gave rise to the production of a distinct and different
article. Hence, deduction under Sections 80-HH
and 80-I is allowable.
As regards to deduction at source under Section
195(1) the Supreme Court held that usance interest
is exempt from payment of income tax if paid in respect
of ship breaking activity. The assessee was not
bound to deduct tax at source once Explanation-2
to Section 10(15)(iv)(c) stood inserted as TDS arises
only if the tax is assessable in India. Since tax was not
assessable in India, there was no question of TDS being
deducted by the assessee.
The appeals were disposed of.
Section 80-I of the Income Tax Act, 1961 - Deductions - Profits and gains from industrial undertakings after a
certain date [Assessment Year 1993-94]
Whether receipt of service charges was or was not directly linked with the manufacturing activity carried out in
the industrial undertaking of the appellant
Krishak Bharati Cooperative Ltd. v. Joint Commissioner of Income Tax (Supreme Court) 21 October, 2008
1These cases have been compiled and contributed by www.Indlaw.com. Readers are invited to send their comments on the selection of cases and their
utility at eboard@icai.org. For the convenience of readers full text of these cases have been hosted on the website of the Institute at the link: http://
www.icai.org/post.html?post_id=2583
Edited by Journal Section ICAI
THE CHARTERED ACCOUNTANT 997 DECEMBER 2008