Law: Income Tax Act, 1961

Section: 33,43A,43(1)

Section 43A read with section 33 of the Income-tax Act, 1961 - Actual cost - Computation of, in consequence of change in rate of exchange of currency - Whether special provisions of section 43A(1) apply only in relation to computation of depreciation for purposes of computing development rebate, method provided under sub-section (1) of section 43A has to be ignored, and calculation is to be made only on basis of section 33 read with section 43(1) - Held, yes Facts By an agreement dated 22-5-1964, the assessee-company contracted with one 'L', a German company, to purchase a plant. The agreement set out that the price would be the aggregate payable in respect of the various component parts of the plant and that the same would be payable in instalments. The majority of shipments of the plant were received by 6-6-1966 on which date devaluation of the Indian rupee took place. By that date, certain payments had already been made and some balance remained to be paid. Consequently, the assessee's liability in terms of rupees increased to a considerable extent. Thereafter, in February 1967, the plant was completed and began functioning in the assessment year 1967-68. The assessee claimed the benefit of section 43A(1) insofar as depreciation on the plant was concerned and the same was allowed by the ITO. The ITO also allowed to the assessee development rebate on the cost of the plant as enhanced due to the said devaluation. The Additional Commissioner, however, in exercise of his powers under section 263, held that the acquisition of the plant was complete when the contractual obligations were crystallised on 22-5-1964 and, therefore, the assessee had acquired the plant before the devaluation date and not thereafter and as such the assessment order allowing the development rebate on the enhanced cost was erroneous and prejudicial to the interests of the revenue. On appeal, the Tribunal accepted the assessee's claim and held that the assessee had an outstanding liability to pay part of the purchase price to the seller in foreign exchange; that that liability had increased as a result of the devaluation of the Indian rupee and that the assessee was entitled to claim…

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