Law:

Section:

Income-tax----Depreciation---Actual cost---Depends on the amount paid by assessee to acquire asset---Loan obtained to acquire asset---Manner or mode of repayment of loan or non-repayment of loan will not alter cost of asset--¬Fluctuations in rate of foreign exchange resulting in gain or loss while repaying instalments of foreign loan---Will not alter cost incurred for purchase of asset for computing depreciation---Indian Income Tax Act, 1961, Ss.32 & 48(a)(ii). The manner of repayment of the loan cannot affect the cost of the assets acquired by the assessee. What is the actual cost depends on the amount paid by the assessee to acquire the asset. The amount may have been borrowed by the assessee. But even if the assessee did not repay the loan it will not alter the cost of the asset. 1f the borrower defaults in repayment of a part of the loan, the cost of the asset will not change. What has to be borne in mind is that the cost of an asset and the cost of raising money for purchase of the asset are two different and independent transactions. Even if an asset is purchased with non-repayable subsidy received from the Government, the cost of the asset will be the price paid by the assessee for acquiring the asset. Held accordingly, that for the assessment years 1960-61 and 1961-62, at the time of repayment of loan, there was a fluctuation in the rate of foreign exchange as a result of which, the assessee had to repay a much lesser amount than he would have otherwise paid. This was not a factor, which could alter the cost incurred by the assessee for purchase of the asset. The assessee might have raised the funds to purchase the asset by borrowing but what the assessee had paid for it, was the price of the asset. That price could not change by any event subsequent to the acquisition of, the asset. The manner or mode of repayment of the loan had nothing to do with the cost of an asset acquired by the assessee for the purpose of his business. CIT v. Tata Hydro Electric Power Supply Co. Ltd. (1986) 159 ITR 28 (Bon.) ref. JUDGMENT Although several questions of law were raised before the High Court, we are here concerned only with the following two questions: (2)…

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