Law:

Section:

Section 4 of the Income-tax Act, 1961 - Income - Chargeable as - Assessment year 1997-98 - Whether since entire money raised through issue of equity shares is to be treated as capital receipt, gains on account of foreign exchange fluctuations, in event such share capital has been collected in foreign exchange, would be capital receipt irrespective of end use of share capital - Held, yes FACTS The assessee was a multi-product company engaged in the business of alcoholic beverages, malted milk foods, dairy products, etc. During the relevant assessment year, it issued certain equity shares overseas by way of GDR and collected the money in the US Dollars as share capital. The share capital raised had to be mandatorily retained overseas and was to be repatriated into the country as and when required for approved end uses and, therefore, the assessee kept the entire share capital in fixed deposits with a bank in the UK. During the year under appeal, the assessee had accounted for certain gain arising from exchange rate fluctuation of foreign currency in its balance sheet. The Assessing Officer treated the same as revenue receipt exigible to tax. On appeal, the Commissioner (Appeals) held that since 79 per cent of the share capital was to be used for acquiring fixed capital assets, the gain on exchange fluctuation to that extent was to be treated as capital receipt and as 21 per cent of the share capital raised was to be utilized for other business expenses, the said gain was to be treated as revenue receipt exigible to tax. On cross appeals, the Tribunal dismissed the appeal of the revenue but allowed the appeal of the assessee treating the entire gain as capital receipt. On the revenue's appeal : HELD Insofar as the orders of the two authorities below, treating gain on exchange rate fluctuation at 79 per cent, was concerned, it was not seriously debated or disputed by the revenue. Even otherwise, up to that stage there was hardly any issue inasmuch as the assessee had raised share capital by issuing equityshares overseas by way of GDR and collected the money in the US Dollars. That was done with the prior permission of the Ministry of Finance, Government of India.…

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