INCOME TAX ACT, 1961

Sedction 28(i)

Business income - Foreign exchange fluctuation gains - Loan advanced being capital asset -

Assessee had advanced loan to Aamby Valley Mauritius Ltd. ('AVML') a wholly owned foreign subsidiary in the current year as well as preceding assessment years. The said loan was shown as an 'Asset' under the Head 'long-term loans and advances', in financial statement of the assessee. Further, the loan was provided in foreign currency and the repayment of the said loan by AVML also takes place in foreign currency. The assessee had opening balance of Rs. 91,17,97,139 on account of foreign currency monetary item transaction reserve wherein additions had been made during the year amounting to Rs. 4,83,64,47,400 from foreign cuurrency monetary item transaction, whereas the company has amortized to the extent of Rs. 67,06,69,129 and offered the same for tax.Held: The loan given to AVML was a capital asset which helps in earning incidental interest income, which is also offered for taxation. Since the loan advanced was its long-term asset, i.e., on account of capital asset and not as part of circulating capital, therefore, foreign fluctuation gain on account of alteration in the rates of exchange would be a capital accretion. The loan is shown as asset under the Head 'Long Term Loan and Advance' in accounts. Assessee, thus, rightly followed Accounting Standard-11. Hence, the loan given by the assessee being a capital asset of the assessee, any loss/gain on account of Forex was to be added/subtracted to the loan. There was no justification for the authorities below to make the addition.

Relied:CIT v. Woodward Governor India Pvt. Ltd., (2007) 294 ITR 451 (Del) : 2007 TaxPub(DT) 1205 (Del-HC), Sutlez Cotton Mills Ltd. v. CIT, (1979) 116 ITR 1 (SC) : 1979 TaxPub(DT) 0782 (SC) and CIT v. Woodward Governor India Pvt. Ltd., CIT v. Canara Bank Ltd., (1967) 63 ITR 328 (SC) : 1967 TaxPub(DT) 0230 (SC), Homi Mehta & Sons Pvt. Ltd. v. CIT, (1996) 222 ITR 528 (Bom.) : 1996 TaxPub(DT) 0099 (Bom-HC), Nixdorf Informationsysteme GmBH v. Dy. Director of Income Tax (International Taxation)-2(1), Mumbai (2016) 158 ITD 480 (Mum.-Trib) : 2016 TaxPub(DT) 1760 (Mum-Trib).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2012-13

INCOME TAX ACT, 1961

Section 14A Rule 8D

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