Loss due to Exchange Fluctuation is Revenue Expenditure: Supreme Court grants Relief to Wipro [Read Judgment]

In a major relief to Wipro Finance Ltd., the Supreme Court observed that the loss suffered owing to exchange fluctuation can be regarded as revenue expenditure and thus an allowable deduction.

The bench comprising Justices AM Khanwilkar, Abhay S. Oka, and C T Ravikumar was considering an appeal against the High Court judgment which had reversed the above view taken by Income Tax Appellate Tribunal.

Wipro entered into a loan agreement with one Commonwealth Development Corporation for borrowing amount to carry on its project. The loan was obtained in foreign currency (5 million pounds sterling). While repaying the loan, due to the difference in the rate of foreign exchange, it had to pay the higher amount, resulting in the loss. The loan amount was utilised by the appellant for financing the existing Indian enterprises for procurement of capital equipment on a hire purchase or lease basis.

The bench observed that the transaction of loan between the appellant and Commonwealth Development Corporation was in the nature of borrowing money by the appellant, which was necessary for carrying on its business of financing.

“It was certainly not for the creation of asset of the appellant as such or acquisition of an asset from a country outside India for the purpose of its business. In such a scenario, the appellant would be justified in availing deduction of entire expenditure or loss suffered by it in connection with such a transaction in terms of Section 37 of the Act,” the Court held. Upholding the High Court order, the Apex Court observed that “A priori, we are of the considered opinion that the analysis was done by the ITAT and the conclusion arrived at in respect of the subject claim of the appellant being the correct approach consistent with the exposition of this Court, needs to be upheld. In our opinion, the High Court missed the relevant aspects of the analysis of the ITAT concerning the fact situation of the present case. As a matter of fact, the High Court has not even adverted to the aforementioned reported decisions, much less its usefulness in the present case.”

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