40 Section 43A – Foreign exchange fluctuation – Where assessee constructed a residential house and rental income earned therefrom was offered to tax as income from house property and not as business income, provisions of section 43A would not apply to apparent gain made by assessee as a consequence of foreign exchange fluctuation in respect of lift imported from abroad

CIT
vs. Bengal Intelligent Parks (P.) Ltd.; [2018] 94 taxmann.com 399 (Cal);

Date
of order: 10^th May, 2018

The
assessee was engaged in construction of houses for the purpose of letting them
out. The rental income was claimed as income from house property without the
expenses for constructing the house being claimed by way of deduction or the
individual items therefore being subjected to depreciation. In respect of a
particular elevator imported by the assessee for installation at one of its
buildings, the rise of the rupee compared to the relevant foreign currency
resulted in the cost of the equipment being effectively lowered by a sum in
excess of Rs. 6 lakh. The Assessing Officer added said amount to assessee’s
income.

The
assessee filed appeal contending that since the elevator was not used for the
purpose of its business and no deduction or depreciation or the like had been
claimed in respect thereof, the perceived additional income on account of
foreign exchange fluctuation could not be added back as an income in the hands
of the assessee. The Tribunal having accepted assessee’s contention, deleted
the addition made by the Assessing Officer.

On appeal
by Revenue, the Calcutta High Court upheld the decision of the Tribunal and
held as under:

“i)  Section 43A deals with the variation of
expenses on account of the change in the rate of exchange of currency. Such
provision takes into account the additional expenses that may be incurred by an
assessee as a result of the fluctuation of foreign exchange rates or the gain
that may be made by an assessee on such account. However, such provision is
confined to assets acquired from a country outside India for the purpose of the
assessee’s business or profession. The Tribunal held in this case that since
the construction of the relevant house was not a part of the business of the
assessee, section 43A would not apply to the apparent gain made by the assessee
as a consequence of the foreign exchange fluctuation.

ii)   On a plain reading of section 43A and the
fact that the assessee had not claimed any deduction or depreciation on account
of the lift or other construction material, it cannot be said that the Tribunal
committed any error or that there is any significant question of law that needs
to be looked into. In the result, revenue’s appeal is dismissed.”