COMMISSIONER OF INCOME-TAX, GUJARAT versus ARVIND MILLS LTD.

Citation: [1991] SUPP. 3 S.C.R. 303 · Decided: 10-12-1991 · Supreme Court of India · Bench: S. RANGANATHAN · Disposal: Appeal(s) allowed

Judgment (excerpt)

COMMISSIONER OF INCOME-TAX, GUJARAT 
v. 
ARVIND MILLS LID. 
DECEMBER 10, 1991 
A 
[S. RANGANATHAN, V. RAMASWAMI AND N~D. OJHA, JJ.] 
B 
Income TaxAct, 1961: 
Section 43A-Capital asset-Purchase of from foreign country-En-
hancement of liability consequent upon devaluation of Indian currency--
Development rebate-Whether could be allowed on the increased cost. 
C 
The Respondent-assessee had acquired, for the purpose of its busi-
ness, a capital asset from a country outside India by making payment in 
foreign currency. For acquiring the said assets, it borrowed money in 
foreign currency from outside agencies and the liablility in respect of such 
assets was outstanding. Due to devaluation of the Indian currency in 1966, D 
the said liability had increased. The assessee claimed development rebate 
on the revised cost of the plant and machinery which included the 
increased liability on account of devaluation. The Revenue allowed devel-
opment rebate only on the actual cost, taking the view that the increase or 
decrease in the actual cost consequent on fluctuations in exchange rate E 
would not be taken into account for the purposes of development rebate. 
Aggrieved against this the assessee preferred appeals and since the High 
Court allowed the assessee's claim, Revenue has preferred the present 
appeal. 
It was contended on behalf of the Revenue that the clear and cate-
gorical statutory mandate contained in Sectfon 43A of the Income Tax Act, 
1961 could not be toned down; and that the special provision viz., Section 
43A(2) should override the general provision relating to allowance of 
depreciation and development rebate on the actual cost of assets.1 
On behalf of· the assessee it was contended that there being no 
provision in the Act as contemplated the non-obstante clause appearing in 
Section 43A(l), there could be no application of Section 43A(l) or Section 
43A(2) to the present case; and that Section 43A was intended to meet a 
different situation, i.e. where the increase .in liability occurred in a subse-
quent accounting year, and not in the same acccounting year; and there-
fore Section 43A has no application to the present case. 
303 
F 
G 
H 
304 
SUPREME COURT REPORTS 
[1991] SUPP. 3 S. C.R. 
A 
Allowing the appeal, this Court 
HELD: 1. The language of the provision viz. Section 43A is perfectly 
clear. It is a clear requirement of the statute that, for purposes of devel-
opment rebate, any increase or decrease in the actual cost consequent on 
fluctuations in exchange rate should not be taken into account. It may be 
B that the legislature intended to give a different treatment to development 
rebate from depreciation and other aUowances because the allowance of 
development rebate may result in an assessee claiming allowances exceed-
ing the original cost. It may be that the legislature thought that, though 
development rebate was intended to promote development of industries, 
this could not be allowed at the cost of the foreign exchange resources of 
C the country which are also depleted when there is an increase in liability 
due to devaluation of the currency. It is unnecessary to attribute any 
particular reason for the provision when the language of the section is 
otherwise plain and unambiguous. In the face of the language of sub-
sectfon (2), the assessee cannot be permitted to claim development rebate 
on the increased cost. (323-H; 324 A-CJ 
D 
Arvind Mills Ltd. v. CIT, Gujarat, (1978)112 ITR 64, reversed. 
CITv. Kwality Spinning Mills P. Ltd., (1977)109 ITR 646 (Mad); Union 
Carbide India Ltd. v. CIT; (1981)130 ITR 351 (Cal); CIT v. Arun Spinning 
E 
Mills, (1982)133 ITR 382 (P&H); err v. Coromandel Fertilisers Ltd., 
(1985)156 ITR 283 (A.P.); CIT v. Chowgule & Co. (P) Ltd., (1986)159 ITR 
12 (Born) and CIT v. Cochin Refineries Ltd., (1988)173 ITR 461 (Ker), 
overruled. 
South India Shipping Corporation Ltd. v. CJ.T., (1979)116 ITR 819 
F 
(Mad), approved. 
Commissioner of Income-Ta.xv.A. GajapathiNaidu, (1964)53ITR114; 
CIT v. 'swadeshi Cotton & Flour Mills Pvt. Ltd., (1964)53 ITR 134; CIT v. 
Shahzada Nand and Sons and Ors., (1966)60 ITR 392 SC, referred to. 
G 
2. Section 43A was specially introduced in the Income Tax Act, 1961 
to provide for the treatmen~ of the situation created by the devaluation of 
the rupee. It specifically enacts that the amount of increase or decrease in 
the liability due to exchange rate fluctuation should be adjusted against 
the actual cost or the capital

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