Law:

Section:

Section 28(i) of the Income-tax Act, 1961 - Business loss/deductions - Allowable as - Assessment year 1998-99 - Whether for determining whether loss due to foreign exchange rate fluctuation is revenue loss or capital loss, purpose of acquisition of loan is of no consequence, but what is of consequence is utilization of amount at time when devaluation takes place - Held, yes - Whether where assessee had originally taken a loan for import of capital goods, but at time when devaluation took place loan had undergone a change of character and had assumed a new character of stock-in-trade or circulating capital, any loss suffered by assessee on account of foreign exchange rate fluctuation would have to be treated as a revenue loss and not as a capital loss - Held, yes CASE REVIEW CIT v. Woodward Governor India (P.) Ltd. [2007] 294 ITR 451 / 162 Taxman 60 (Delhi)followed. [Para 10] CASE REFERRED TO CIT v. V.S. Dempo and Co. (P.) Ltd. [1994] 206 ITR 291 / 72 Taxman 134 (Bom.) [Para 7] and CIT v. Woodward Governor India (P.) Ltd. [2007] 294 ITR 451 / 162 Taxman 60 (Delhi)[Para 7]. Mrs. P.L. Bansal for the Appellant. Salil Agarwal and Prakash Kumar for the Respondent. ORDER 1. The revenue is aggrieved by an order dated 21-7-2006 passed by the Income-tax Appellate Tribunal ('the Tribunal') Delhi Bench 'D' in ITA No. 1320 (Delhi) of 2002 relevant for the assessment year 1998-99. 2. The assessee had taken a loan in foreign exchange from the Citi Bank, UK. The total amount borrowed was about US$ 7 million. It appears that a part of the loan amount was utilized for purchase of capital equipment and that was included in capital work-in-progress. The remaining amount of US$ 3.67 million was utilized by the assessee for its business purposes that is of money lending and bill discounting. 3. On 31-3-1998, the assessee showed utilization of the amount to the Reserve Bank of India wherein it mentioned that the amount of US$ 3.67 million has been utilized by the assessee for its business purposes. 4. In view of the fact that there was a fluctuation in the rate of foreign exchange, the assessee suffered a loss and it claimed a deduction on account of the loss incurred. 5. The…

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