S.43 IT Act Applicable to Gain made on Assets for Business/ Profession due to Foreign Exchange Fluctuation: Calcutta HC [Read Judgment]

The Calcutta High Court in CIT vs. M/s. Bengal Intelligent Parks Pvt. Ltd. held that Section 43A of the Income Tax Act,1961 would only apply to the apparent gain made by the assessee, in acquiring assets for the purpose of its business or profession, as a consequence of the foreign exchange fluctuation.

The assessee-respondent builds houses and lets them out. The main source of income was by way of rentals. The income is claimed from the house property without the expenses of constructing the house being claimed by way of deduction or the individual items therefor being subjected to depreciation. They imported an elevator for installation at one of its buildings. Due to a rise of rupee compared to the relevant foreign currency, the cost of the equipment was effectively lowered by a sum of Rs. 6 lakhs. The Assessing Officer (A.O) added this to the income.

Aggrieved, appeal was filed before the Commissioner of Income Tax (Appeal) (CIT(A)), but the same was rejected. Thereafter the assessee sought relief from the Tribunal. The assessee’s Counsel argued 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 noted that Section 43A of the Income Tax Act,1961 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. The Tribunal further noted that such provision would only be applicable when assets are acquired from a country outside India for the purpose of the assessee’s business or profession. The Appellate Tribunal held that since the construction of the relevant house was not a part of the business of the assessee, Section 43A of the Income Tax Act,1961 would not apply to the apparent gain made by the assessee as a consequence of the foreign exchange fluctuation.  The Tribunal allowed the appeal and deleted the addition Thereafter, the Revenue appealed before the High Court.

The Bench comprising of Justice Sanjib Banerjee & Justice Abhijit Gangopadhyay upholding the decision of the Tribunal observed “On a plain reading of Section 43A of the Act 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 appellate Tribunal committed any error or that there is any significant question of law that needs to be looked into.”