Law:

Section:

2007] 294 ITR 451 [2007] 162 TAXMAN 60 (DELHI) HIGH COURT OF DELHI Commissioner of Income-tax* v. Woodward Governor India (P.) Ltd. VIKRAMAJIT SEN AND S. MURALIDHAR, JJ. IT APPEAL NO. 49 OF 2005 AND OTHERS APRIL 30, 2007 Section 43A, read with section 37(1), of the Income-tax Act, 1961 - Foreign currency, rate of exchange, change in - Assessment years 1996-97 to 1998-99 - Whether in cases where foreign currency is held on revenue account, increase in liability on account of fluctuation in rate of foreign exchange prevailing on last day of financial year is not notional or contingent and, therefore, can be allowed as a deduction in terms of section 37(1) - Held, yes Section 43A of the Income-tax Act, 1961 - Foreign currency, rate of exchange, change in - Assessment years 1996-97 to 1998-99 - Whether amendment to section 43A brought about by Finance Act, 2002 with effect from 1-4-2003, providing that amount by which liability is increased or reduced, as a result of change in rate of exchange during any previous year after acquisition of such asset, would be taken into account at time of making payment irrespective of method of accounting adopted by assessee, is prospective - Held, yes - Whether prior to said amendment in capital account cases where cost of asset has been either paid fully or in part prior to fluctuation in rate of foreign exchange, cost of asset would correspondingly be permitted to be reworked for purposes of repayment or depreciation or investment allowance, as the case may be, with reference to rate prevailing on last day of financial year in which that fluctuation occurs - Held, yes Section 5, read with section 145, of the Income-tax Act, 1961 - Income - Accrual of - Whether in determining whether there has, in fact, been accrual of liability or income, accountancy standards prescribed by ICAI would have to be followed and applied - Held, yes Circulars and Clarifications: Circular No. 8 of 2002 FACTS In the instant case, the question that arose for consideration was whether the alleged increase in liability due to foreign exchange fluctuation as per the exchange rate prevailing on the last day of the financial year was merely notional and…

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