April 9, 2009
The Supreme Court on Wednesday dismissed the Income-Tax Department plea that companies cannot claim deductions against tax liability on account of losses due to foreign exchange rate fluctuations.
A Bench headed by Justice S H Kapadia dismissed the Department’s petitions filed against 33 foreign and domestic companies including Maruti Udyog, Jindal Strips, GE Power Services, Perfetti India, Seagram, Escorts Ltd, E I Dupont India, Woodward Governor India, Honda Siel, Turner International and others.
The department had submitted that companies cannot claim deductions on such losses as they were incurred in the ordinary course of business and were part of it. It had argued that where the loss was incurred in respect of circulating capital, it was to be treated as revenue loss and where it was incurred in respect of fixed capital it was to be treated on the capital account.
However, the copy of the judgment was not available. Stating that the loss was in respect of fixed capital in a few cases, the petitions said: “... Under the mercantile system of accounting, liability can be allowed only when liability was repaid or which had been crystallised/ ascertained. The liability debited by Turner was merely a notional liability.”
The companies had stated that deduction can be allowed as liability was on the revenue account. While the Income-Tax Appellate Tribunal had upheld the assessees’ position, the Delhi High Court had endorsed the department’s plea.
[Source: The Financial Express]