By K. B. Bhujle, Advocate
Ballarpur Industries Ltd. vs. CIT; [2017] 84 taxmann.com
61 (Bom)
Assessee-company had accounted for royalty and interest
income on accrual basis, which were exempt under the then India-Malaysia DTAA.
During the subsequent period (A. Y. 1991-92), the assessee had received such
income that was more than what was accounted in earlier years due to exchange
differences. The assessee argued that the exchange difference should be treated
as part of royalty and interest income. Accordingly, it would be exempt from
tax as per India-Malaysia DTAA. The Assessing Officer did not accept the
assessee’s claim and assessed the exchange difference as taxable income. The
Tribunal upheld the decision of the Assessing Officer.
On reference by the assessee, the Bombay High Court upheld
the decision of the Tribunal and held as under:
“i) Gain or loss arising on account of foreign
exchange variation could not bear the same character of exempt income
ii) The revenue had correctly placed reliance on
AS 11 which indicates that benefit derived on account of currency fluctuation
after the year of accrual is to be considered as income or expense in the
period in which they arise
iii) This gain/loss on account of foreign exchange
fluctuation is not part of royalty and interest nor is it any accretion to it.
In this case, it is the generation of further income which is taxable in the
subject assessment year when the variation in foreign exchange has resulted in
further income in India
iv) Thus,
differential amount arising on account of exchange fluctuation was an extra
income which would be subject to tax in the year in which it was received.”
