OIL AND NATURAL GAS CORPORATION LTD., DEHRADUN THROUGH MANAGING DIRECTOR versus THE COMMISSIONER OF INCOME TAX, DEHRADUN

Citation: [2010] 3 S.C.R. 386 · Decided: 15-03-2010 · Supreme Court of India · Bench: D.K. JAIN · Disposal: Appeal(s) allowed

Judgment (excerpt)

A 
B 
c 
(2010] 3 S.C.R. 386 
OIL AND NATURAL GAS CORPORATION LTD., 
DEHRADUN THROUGH MANAGING DIRECTOR 
v. 
THE COMMISSIONER OF INCOME TAX, DEHRADUN 
(Civil Appeal No. 7223 of 2008) 
MARCH 15, 2010 
[D.K. JAIN AND T.5. THAKUR, JJ.] 
Income Tax Act, 1961: 
s.37(1) - AY 1991-92 to 1994-95 and 1997-98 -
Deduction on account of fluctuations in rate of exchange -
Appel/ant-assessee availed foreign loans to cover its 
expenses, both capital and revenue, on import of machinery 
D on capital account and for payment to non-resident 
contractors in foreign currency- Additional liability on account 
of fluctuations in the rate of exchange, in respect of loans . 
taken for revenue purpose - Assessee followed mercantile 
system of accounting - "Loss" suffered by assessee on 
E account of fluctuation in the rate of foreign exchange as on 
the date of balance-sheet - Held: Could be allowed as 
expenditure under s.37(1) notwithstanding the fact that the 
liability had not been actually-discharged in the year in which 
the fluctuation in the rate of foreign exchange had occurred. 
F 
s.43A (as unamended, prior to 1-4-2003) - AY 1991-92 
to 1994-95 and 1997-98 - Adjustment in actual cost of asset 
on account of change in the rate of exchange subsequent to 
acquis!~ion of asset in foreign currency - Appellant-assessee 
availed foreign loans to cover its expenses, both capital and 
G revenue, on import of machinery on capital account and for 
payment to non-resident contractors in foreign currency -
Held: Assessee entitled to adjust the actual cost of imported 
capital assets acquired in foreign currency on account of 
H 
386 
OIL AND NATURAL GAS CORP. LTD. M. D. v. COMMNR. 387 
OF INCOME TAX, DEHRADUN 
fluctuation in the rate of exchange at each balance-sheet date, 
A 
pending actual payment of the varied liability. 
8 
The appellant-assessee is a . public sector 
undertaking, engaged in capital intensive exploration and 
production of petroleum products for which it has to 
heavily depend on foreign loans to cover its expenses, 
both capital and revenue, on import of machinery on 
capital account and for payment to non-resident 
c.ontractors in foreign currency for various services 
rendered. The Assessee made three types of foreign 
exchange borrowings -
(i) in revenue account; (ii) in 
C 
· capital account and (iii) for general purposes, partly 
utilised in revenue account and. partly in capital account.. 
As per the terms and conditions of foreign exchange 
borrowings, some of the loans became re-payable in the 
D 
year under consideration but date of repayment of some 
loans fell after the end of the relevant accounting year. 
The Assessee revalued in Indian currency all its 
foreign exchange loans in revenue account, capital 
.. account as also in its general purposes account, 
outstandi.ng as on 31st March, 1991 and claimed the 
difference between th_eir respective amounts in Indian 
· currency as on 31st March, 1990 and on 31st March, 1991 
as revenue loss under Section 37(1) of the Income Tax 
Act, 1961 in respect of loans used in revenue account, 
arid also took into consideration the similar difference in 
. foreign .exchange on capital account lo::tns as an 
increased liability under Section 43A of the Act for the 
purposes of depreciation. 
The foreign exchange loss incurred by the Assessee 
in the revenue account on account of repayment of the 
loans made in the year under consideration was allowed 
. by the Assessing Officer as a deduction under Section 
37(1) of the Act, and he also took into consideration an 
E 
F 
G 
H 
388 
SUPREME COURT REPORTS 
[2010] 3 S.C.R. 
A increased liability of foreign exchange loans taken in 
capital account and repaid in the accounting year, for the 
purposes of depreciation, under Section 43A of the Act. 
He, however, did not allow the assessee's claim for 
foreign exchange loss claimed on such foreign currency 
B loans both in revenue account and in capital account 
which were outstanding on the last day of the accounting 
year under consideration and were as per the terms of 
borrowings, repayable at the end of the relevant 
accounting year. Similar treatment was given to the 
c foreign exchange loans.taken for general purposes, used 
partly in revenue account and partly in capital account. 
Thus, the Assessee's claim for foreign exchange loss/ 
increased liability on revaluation of these foreign 
exchange loans at the end· of the accounting year under 
0 consideration both in the rev

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