ASSISTANT C.L.T., VADODARA versus ELECON ENGINEERING CO. LTD.

ASSISTANT C.L.T., VADODARA versus ELECON ENGINEERING CO. LTD.

Roll over premium charges paid in respect of foreign exchange forward contracts for acquisition of fixed assets constitute the difference arising due to change in foreign exchange rates and must be capitalised under Explanation 3 to Section 43A as it stood for the relevant assessment year. Section 43A applied to the entire liability at year-end; roll over charges relating to fixed assets must be debited/credited to the asset, not to the Profit & Loss Account.

Parties
Appellant: ASSISTANT C.I.T., VADODARA; Respondent: ELECON ENGINEERING CO. LTD.
Jurisdiction
India
Judgment Date
26 February 2010
Procedural Posture
Civil Appeal / Appeal From Judgment of Gujarat High Court in Tax Appeal No. 144 of 2001
Outcome
Appeal allowed; High Court judgment set aside.
Legal Topics
Income Tax, Capitalisation of Foreign Exchange Differences, Depreciation, Explanation 3 to Section 43 a
Taxation Income Tax Capitalisation of Foreign Exchange Differences Depreciation Explanation 3 to Section 43 a

Case Brief

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Parties

ASSISTANT C.I.T., VADODARA

Appellant

ELECON ENGINEERING CO. LTD.

Respondent

Procedural Posture

Civil Appeal / Appeal From Judgment of Gujarat High Court in Tax Appeal No. 144 of 2001

Legal Issues

  1. 1 Whether roll over premium charges paid by the assessee for foreign exchange forward contracts in assessment year 1986-87 must be capitalised under Explanation 3 to Section 43A of the Income Tax Act, 1961

Ratio Decidendi

Roll over premium charges paid in respect of foreign exchange forward contracts for acquisition of fixed assets constitute the difference arising due to change in foreign exchange rates and must be capitalised under Explanation 3 to Section 43A as it stood for the relevant assessment year. Section 43A applied to the entire liability at year-end; roll over charges relating to fixed assets must be debited/credited to the asset, not to the Profit & Loss Account.

Court Disposition

Appeal allowed; High Court judgment set aside.

Orders

  • Civil appeals by Department allowed.
  • Roll over charges required to be adjusted in carrying amount of fixed asset.