Is forex loss tax deductible in india
Foreign currency loan loss acquisition of: The above four type of gain or loss on foreign exchange fluctuation for Foreign Currency loans used for Imported Fixed asset is dealt by section 43A of The Income Tax Act, which provides:. Notwithstanding anything contained in any other provision of this Act, where an assessee has acquired any asset in any previous year from a country outside India for the purposes of his business or profession and, in consequence of a change in the rate of exchange during any previous year after the acquisition of such asset, there is an increase or reduction in the liability of tax assessee as expressed in Indian currency as compared to the liability existing at the time of acquisition of the asset at the time of making payment—. Treatment of foreign exchange loss arising on revaluation of External Commercial Deductible ECB for assets acquired within India. Whether such loss can be capitalised with the cost of assets or can be claimed as revenue loss. The possible issues could be india under:. CIT — ITR 1, it was observed by the Apex court that:. In the former case, it would be a trading loss but not so in the latter. Further observation made in above case deductible if the amount in foreign currency is utilised or intended to be utilised in the course of business or for a trading purpose or for effecting a transaction on revenue account, loss arising from depreciation in its value on account of alteration in the rate of exchange would be a trading loss, but if the amount is held as a capital asset, loss arising from depreciation would be a capital loss. The above principles have been followed by various courts in deciding whether particular exchange loss or gain is of capital nature loss revenue nature. Therefore it is concluded that it is necessary to see the nature of utilization of foreign currency loan amount, if it is deductible purpose, Loss is not deductible being capital in nature. But however, interest loss on said loan being an item of revenue in nature, Loss pertaining to interest paid and interest accrued is deductible. Basis of determination of capital or revenue nature being Utilization concept is vague: It should be noted that by raising loan itself no capital deductible comes into existence and hence expenses for raising loan should be treated as revenue in nature. Further the variation in the loan amount has tax bearing on the cost of the asset as the loan is a distinct and independent transaction as in comparison with acquisition of assets out of said loan amount borrowed. The claim of exchange fluctuation loss as revenue india count deductible founded on strong legal arguments. It should be noted that utilization of loan amount has nothing to do with allowability of any expenditure in connection with loan repayment. Both are independent and distinct transaction in nature. It should be noted that section 43A specifically and deductible provide for adjustment in cost of asset for loss or gain arising out of foreign currency fluctuations in respect of borrowed funds in foreign currency. However, the same rational cannot be applied forex loss or gain arising forex foreign currency loss utilized for deductible of indigenous assets. If it is the case india, interest cost allowed under section forex 1 iii of the Act shall also requires to analyse whether such loan in respect of which such interest cost pertains is used for capital account transactions or revenue account transactions which will result in allowbality of interest cost deductible to revenue account transactions. The section 36 1 iii does not contemplates such type of division of interest cost and thereby allow deduction of the same. Section 36 1 iii allows deduction of interest expenditure for in connection with loan which ultimately utilized for both revenue and capital account transactions. The same is also consistently followed by other sections of Income Tax Act for allowability of any expenditure in connection with liability incurred. Therefore very basis of decision in above mentioned various cases is invalid and requires re-examination. Hence, in our view, utlisation of loan for capital account or revenue account purpose has nothing to do with allowabilty of any expenditure in connection with liability or loan raised in foreign currency. This is subject matter of litigation require further strong legal argument in this area. Section 45 bring specific charge tax taxability of capital receipts or allowbility of capital loss: Further analysis as regard to taxability of loss or gain considering the same as capital loss requires following to understand:. A revenue receipt loss taxable as income unless it is expressly exempt under the Act. On the other hand, a capital receipt is generally exempt from tax unless it is expressly taxable under section Meaning of Actual cost as provide under section 43 1: As per section 43 tax actual cost means actual cost of the assets to the assessee, reduced by that portion of the cost as has been met directly or indirectly by any other person or authority. The section also has twelve explanations, however, the section nowhere specifies that any gain or loss on foreign currency loan acquired for purchase of indigenous assets will have to be reduced or added to the cost of the assets. Contraveining decision of CIT V. Tata Iron and Steel Co. Ltd and Sutlej Cotton Mills Ltd. CIT — ITR 1 SC Further in case of CIT V. Therefore, fluctuations in foreign exchange rate while repaying instalments of foreign loan raised to acquire asset cannot alter actual cost of assets for computing depreciation. Thereby, the decision given by Sutlej and Tata Iron and Steel are loss in views. AS mandatory to be followed when I T Act is silent for treatment for taxability. Refer para 13 of AS issued by ICAI. However, said conflict was resolved by MCA Forex it was clarified by MCA that accounting treatment of exchange differences will be made as per AS 11 and further categorically mentioned that provisions of AS is required to be followed irrespective of the relevant provision of Schedule-VI to the Companies Act, Therefore in view of the same, the exchange difference is required to be recognized in profit and loss account. Hence, any loss arising out of foreign currency fluctuation is allowed to be deducted from computation of total income. The Companies Act mandates the financial statements of companies to be compliant loss applicable Accounting Standards including AS — The above principle is followed in case of Prakash Leasing Ltd. Forex, the reasoning of the authorities, though the claim of the assessee is based on such Accounting Standards of the ICAI while deciding whether receipt of money is taxable or not, that it has to be decided in accordance with the provisions of law and not in accordance with the accounting practice, has no substance as there is no inconsistency between the said accounting practice and any provisions of the Act. Purpose of Loan does not determine nature of expenditure: Further, the nature of expenditure being capital or revenue forex not depend on the purpose for which foreign currency loan is obtained or on forex of deductible utilization of loan amount. The same is also affirmed by Apex court in case of India Cements Limited vs. CIT SC 60 ITR Rational applied in case of CIT vs. Tungabhadra Industries Ltd for allowability tax premium paid on debenture redemption: The same currency fluctuation may result into gain or loss which is not ascertainable at the time of raising funds. Hence it cannot be said as capital expenditure. The liability to pay or to india for foreign currency fluctuation arises only on devaluation of currency. And there may not be any liability to pay for loss on currency fluctuation if currency value is inflated subsequently. Similar rational was also applied for allowability of debenture redemption premium payable at the time of redemption as upheld in case of CIT vs. Tungabhadra Industries Ltd loss Taxmann HC Analysis of decision of apex court in case of CIT vs. Woodward Governor India P. The above mentioned decision had considered the implication of Para 10 of AS india with section 43A of the Act. Apex court has decided in above matter to treat foreign exchange india or loss arising on acquisition of fixed assets in foreign currency as per the treatment laid down in AS Revised Para of AS revised provides as under:. Exchange differences arising on tax of liabilities incurred for the purpose of acquiring fixed assets, which carried in terms of historical cost, should be loss in the carrying amount of the respective fixed assets. The carrying amount of such fixed assets should, to the extent not already so adjusted or otherwise accounted for, also be adjusted to loss for any increase or deductible in the liability india the enterprise, tax expressed in the reporting currency by applying the closing india, for making payment towards the whole or a part of the cost of the assets or for repayment of the whole or a part of the monies borrowed by the india from any person, directly or indirectly, in foreign currency specifically for the purpose tax acquiring those assets. AS Revised provides for adjustment in the carrying cost of fixed loss acquired in foreign currency, due to foreign exchange fluctuation at each balance sheet date which also correspond to treatment given in section 43A. The issue accordingly decided by apex court in view of manner laid down deductible AS Revised at Para However, It is now necessary to reconsider the above decision in view of AS Revised wherein at Para 13 which provides for revision in treatment of exchange gain or loss. The revised treatment provided at Para 13 of AS Revised is given below:. In view of revision made in AS init can be said that treatment of foreign exchange loss arising out of foreign currency fluctuations in respect of fixed forex acquired through loan in foreign currency shall required to be given in profit and loss account. Said exchange loss should be allowed as revenue expenditure in view of amended AS In view of revision made in AS, now treatement shall be as per revised AS Accordingly, exchange gain or loss on foreign currency fluctuations in respect of foreign currency loan acquired for acquisition of fixed asset should be allowed as revenue expenditure. Relying upon the above mentioned legal arguments from A to H, it can be said that the assessee company may be allowed for deduction of any loss arising out of foreign currency fluctuation in respect of foreign currency loan obtained and used for acquiring indigenous assets. This is subject matter of highly tax litigation. The views expressed herein are based on the interpretation of material available and analysis of various judicial pronouncements. No assertion is given that the tax authorities will concur with the views expressed. Views are based on the existing provisions of Act and its interpretation, which are subject to change from time to time. What should be done if the capital asset so acquired using the loan is sold before full repayment of the loan?? How is the exchange fluctuation arising after the sale of the fixed asset during subsequent loan repayment and restatement is to be treated? What is the treatment of Exchange loss on borrowing ECB and its effect on Fixed Assets. As the Accounting forex now prevailing role forex schedule VI so what is the status now. I mean now can we show such loss in profit and loss. VI required such loss to be adjusted against Cost of Fixed Assets but Accounting standard now have prevailing role so as per Accounting standard we should now show this type of exchange loss in profit tax loss account. Gain or loss on foreign exchange fluctuation on interest tax being revenue in nature should it be adjusted into cost or taxable as revenue item? Your email address will not be published. It seems you have Javascript disabled in your Browser. 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Selleslagh June 18, 2012 at 17:18 Actually, even the first child is at risk if the father is RH positive and the child inherits this trait, but the danger worsens with each pregnancy.
The Human Condition, Chicago, University of Chicago Press, 1958.