Law:

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Sutlej Cotton Mills v. CIT [1979] 116 ITR 1 (SC) , Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167 (SC) , Addl. CIT v. Kwality Spinning Mills (P.) Ltd. [1977] 109 ITR 646 (Mad) and Arvind Mills Ltd. v. CIT [1978] 112 ITR 64 (Guj.) followed and relied upon. South India Shipping Corporation Ltd. v. Addl. CIT [1979] 116 ITR 819 (Mad) dissented from. JUDGMENT Sabyasachi Mukharji, J.-In this reference, under sub-s. (1) of s. 256 of the I.T. Act, 1961, for the assessment year 1967-68, the following questions have been referred to this court for answer; "1.Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the increase in liability of Rs. 1,75,99,854 due to devaluation was not deductible in computing the assessee's business income? 2.If the answer to question No. 1 is in the affirmative, whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the alternative claim of the assessee-company for development rebate under section 33 of the Income-tax Act, 1961, on Rs. 1,09,24,832 was not admissible under the provisions of the Act?" In order to appreciate these questions, it is necessary to state certain facts. The assessee is a limited company and, as mentioned hereinbefore, the reference relates to the assessment year 1967-68. The assessee-company under an agreement dated August 16, 1963, had taken a loan from the Export Import Bank of Washington for making payment in the United States of America of the price of capital plant and machinery purchased for the new project, viz., a petrochemical undertaking. The loan was taken and repayable in dollars. This is an important fact which is to be borne in mind. Out of this loan, which the assessee-company took from the Export Import Bank, payment was made for capital plant and machinery purchased from the various suppliers in the United States of America and the plant and machinery so purchased were shipped to India for installation in the petrochemical undertaking. On June 6, 1966, there was devaluation of the Indian rupee and, therefore, the liability of the assessee-company for repayment of loan to the Export…

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