July 2011
ACIT v. Shalimar Synthetic Pvt. Ltd. ITAT ‘G’ Bench, Indore Before Joginder Singh (JM) and R. C. Sharma (AM) ITA No. 464/Ind./2006 A.Y.: 2000-01. Decided on: 29-3-2011 Counsel for revenue/assessee: Keshav Saxena/Jitendra Jain
By Jagdish D. Shah, Jagdish T. Punjabi
Chartered Accountants
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Section 37(1) — Capital v. Revenue receipt — Amount received in foreign currency towards share application money kept in foreign branch of the bank — Subsequently share application money had to be refunded by the assessee — After refunding share application money surplus of about Rs.1 crore on account of appreciation in value of foreign currency remained in the account — Whether such amount can be taxed as revenue receipt — Held, No.
Facts:
Pursuant to a foreign collaboration agreement, the foreign collaborator paid Rs.54 lac in DM towards share application money for 54,000 shares. The amount so received was deposited in Frankfurt branch of the State Bank of India. The assessee had also paid advance to the foreign collaborator against supply of plant and machinery. However, the project was subsequently abandoned and the assessee was required to refund the share application money received. By then, on account of appreciation in value of foreign currency, the balance in the SBI’s account in terms of rupees had appreciated by more than Rs.1 crore.
After obtaining RBI’s permission, the assessee repaid to its erstwhile foreign collaborator share application money by adjusting advance paid for plant and machinery and the balanced sum out of the balance with SBI. The issue before the Tribunal was regarding the taxability of Rs. 1 crore which arose on account of appreciation in value of foreign currency. The AO taxed the amount treating the same as revenue receipt. However, on appeal, the CIT(A), relying on the decision of the Supreme Court in the case of Sutluj Cotton Mills Ltd. (116 ITR 1) and Tata Locomotive & Engg. Co. Ltd. (50 ITR 405) held that the receipt was in the nature of capital receipt not liable to tax.
Held:
According to the Tribunal, the money received by the assessee on share capital account as well as the money paid for plant and machinery, both were on capital account. Therefore, according to it, the appreciation or depreciation with respect to this money on account of depreciation of currency was liable to be treated as capital receipt/expenditure. Thus, it observed that if due to fluctuation in currency, the assessee got higher amount out of the credit balance in share capital account, the same was liable to be treated as capital receipt not liable to tax. Similarly, if any higher amount was liable to be paid to the foreign collaborator on account of refund of advance due to appreciation in value of foreign currency, the same was not allowable as revenue expenditure. Accordingly, the order of the CIT(A) was upheld and the appeal filed by the Revenue was rejected.
