Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessee-company manufactured vehicles known as 'mopeds' - It purchased parts of vehicles from French company to whom payment was made through assistance of German firm which advanced loans in German currency - Pursuant to fluctuations in rate of exchange, assessee paid some more amount to supplier and claimed it as revenue expenditure - Whether payment in question was made towards supply of plant and machinery and was not made to creditor (German firm) to discharge debt due by assessee and, therefore, it was capital expenditure - Held, yes FACTS The assessee manufactured two-wheeler vehicles known as 'mopeds'. The assessee purchased parts of the vehicles from a French company and the payment to this French company was made through the assistance of a German firm, which advanced loans in German currency. The assessee paid some more amount as a result of the exchange rate fluctuations and claimed the said amount as revenue expenditure. The revenue asserted that it was part of the purchase money paid to the French firm and, therefore, was not an amount paid to the creditor, i.e., the German firm. The ITO rejected the assessee's claim. The AAC allowed the claim. The Tribunal held that the amount paid by the assessee was part of the instalments payable to the French company and for that reason could not be deducted as revenue expenditure. On reference: HELD Having regard to the statement of fact, it was specifically found that the claimed amount was paid to the supplier, i.e., the French company, for supply of plant and machinery. This statement of fact was not disputed, but it was disputed in the High Court. No question, however, was raised to say that it was incorrectly set out before the Tribunal. The Court was satisfied that, as a question of fact, it was held that the payment was made to the French company towards the supply of plant and machinery and in that sense, it was capital expenditure and was not paid to the creditor to discharge the debt due by the assessee to the German firm. Therefore, the payment made to the French company was a capital expenditure which was…

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