| Case ID |
1004bc9a-0c5e-45b9-bf84-bca779a13f2b |
| Body |
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| Case Number |
IT REFERENCE No. 327 OF 1979 |
| Decision Date |
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| Hearing Date |
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| Decision |
The case revolves around the treatment of additional liability incurred by the assessee-company due to the devaluation of the Indian currency. The court held that under the mercantile system of accounting, the liability arose in the year of devaluation, and thus, the Tribunal's decision to allow the deduction in subsequent years was erroneous. The court emphasized that the profit or loss on account of devaluation is recognized in the year the devaluation occurs, not in the year of actual payment. This ruling reiterates the principles of accounting and taxation concerning foreign exchange fluctuations. |
| Summary |
This case, heard in the Calcutta High Court, addresses the taxation principles under the Income-tax Act, 1961, specifically regarding the accounting treatment of additional liabilities resulting from currency devaluation. The assessee, Oil India Ltd., claimed deductions for expenses incurred due to the devaluation of the Indian rupee in 1966, during the assessment years of 1968-69 and 1969-70. The Income Tax Officer initially rejected these claims, stating that the expenses were incurred in the year of devaluation and should be accounted for in that year. However, the Tribunal later allowed the deductions based on the actual payment made in the subsequent years. The High Court, upon review, clarified that under the mercantile accounting system, such liabilities are recognized in the year they arise, thus ruling against the Tribunal's decision. This case sets an important precedent for entities dealing with foreign loans and currency fluctuations, reinforcing the necessity of adherence to proper accounting practices. Keywords: taxation, Income-tax Act, currency devaluation, accounting principles, Calcutta High Court, Oil India Ltd., mercantile system, revenue expenditure. |
| Court |
Calcutta High Court
|
| Entities Involved |
Commissioner of Income tax,
Oil India Ltd.
|
| Judges |
Suhas Chandra Sen
|
| Lawyers |
B.L. Pal,
A.N. Bhattacharjee,
Kalyan Roy,
R.N. Dutt
|
| Petitioners |
Commissioner of Income tax
|
| Respondents |
Oil India Ltd.
|
| Citations |
1983 SLD 1224 = (1983) 143 ITR 848
|
| Other Citations |
Khandelwal Bros. (P.) Ltd. v. CIT [1979] 117 ITR 452 (Cal.),
Bestobell (India) Ltd. v. CIT [1979] 117 ITR 789 (Cal.),
Calcutta Jute Agency (P.) Ltd. v. CIT [1979] 117 ITR 741 (Cal.),
Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1 (SC),
Oil India Co. Ltd. v. CIT [1982] 137 ITR 156 (Cal.),
Imperial Tobacco Co. (of Great Britain And Ireland) Ltd. v. Kelly [1943] 25 TC 292 (CA),
Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC),
CIT v. Orient Paper Mills Ltd. [1983] 139 ITR 763 (Cal.),
CIT v. Kalyan Spg. Mills Ltd. [1981] 128 ITR 279 (Cal.)
|
| Laws Involved |
Income-tax Act, 1961
|
| Sections |
145,
37(1),
80-1
|