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I-T dept moves SC against Turner International India

I-T dept moves SC against Turner International India
PTI
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First Published: Fri, Apr 03 2009. 01 34 PM IST
Updated: Fri, Apr 03 2009. 01 34 PM IST
New Delhi: The Income-Tax Department has moved the Supreme Court against the decision of Turner International India Ltd to claim deduction against tax liability on account of losses due to foreign exchange rate fluctuations.
Raising the issue in a petition filed against Turner International India Ltd, the Department submitted that the matter had wider ramifications as it would result in a loss of revenue to the state exchequer.
A bench headed by Justice S H Kapadia has kept the matter with a similar petition pending before it.
According to the Department, it had asked Turner to explain as to whether losses were on the revenue or the capital account after it found that the company had claimed deduction against exchange rate fluctuation hits (on foreign loans) of more than Rs1.68 crore in February 2004.
However, the tax department had disallowed the deduction claim, turning down Turner’s plea that such losses were allowed as deduction as they were incurred in the ordinary course of business and were incidental to it.
Terming the assessee’s plea as misleading, the I-T authorities held the company had made additions to fixed assets worth Rs14.37 crore, which were largely from loans taken from foreign parties.
Citing the apex court’s ruling in the Sutlej Cotton Mills case, the Revenue said that where the loss was incurred in respect of circulating capital, it was to be treated as revenue loss and where it was incurred in respect of fixed capital it was to be treated on the capital account.
Stating that the loss was in respect of fixed capital in Turner’s case, the petition said: “... Under the mercantile system of accounting, liability can be allowed only when liability was repaid or which had been crystallised/ ascertained. The liability debited by Turner was merely a notional liability.”
However, both the Commissioner of Income-Tax (Appeal) and the Income-Tax Appellate Tribunal had upheld Turner’s position that the liability in this matter was on the revenue account and thus deduction can be allowed.
The Delhi High Court had also endorsed the tribunal’s position.
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First Published: Fri, Apr 03 2009. 01 34 PM IST