WIPRO Finance Limited v. CIT

Case snapshot

Sections / provisions: Section 37; 43A and 254 of Income-tax Act; 1961

Questions before the Court / Tribunal

• WIPRO Finance Limited Vs CIT(Supreme Court of India) Date-12th April,2022 Sub-Whether foreign exchange fluctuation of Rs 1.10 crore incurred for the purpose of borrowing in the business of financing and leasing is a revenue expenditure allowable u/s 37 and also whether the ITAT has power to entertain a new claim of Rs. 2.46 crores for the first time- decision in the case of NTPC and Goetze(India) limited explained. The Hon’ble three judges bench of Supreme Court in this case was considering assessee’s appeal against the order of the High court which had reversed the findings of ITAT that the expenditure of Rs 1.10 crore towards foreign exchange fluctuation loss was a revenue expenditure. The Hon’ble Court based on the famous decision in the case of India Cement as well as Empire Jute held that as no new asset was created ,the expenditure was fully allowable. Also the Court upheld the…
• Which factual, statutory and procedural conditions controlled the requested relief?
• How did the forum apply the governing provisions to the evidence and procedural history recorded in this case?

Material facts and procedural background

REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 6677 OF 2008 WIPRO FINANCE LTD. …APPELLANT VERSUS COMMISSIONER OF INCOME TAX …RESPONDENTS O R D E R 1. This appeal takes exception to the judgment and order dated 2.4.2008 passed by the Division Bench of the High Court of Karnataka at Bengaluru in I.T.A. No. 633/2004. 2. Briefly stated, the appellant company submitted returns of income on 29.11.1997 for the assessment year 19971998, mentioning loss of income, amongst others, owing to exchange fluctuation of Rs.1,10,53,909/. After processing the return under Section 143(1)(a) of the Income Tax Act, 1961 1, the assessment was completed on 16.3.2000. As against the loss declared by the appellant due to exchange fluctuation, the assessment was concluded by 1 for short, “the 1961 Act”

positive taxable income. Against that decision, the matter was carried in appeal by the appellant before the Commissioner of Income Tax (Appeals)2 and eventually, by way of appeal before the Income Tax Appellate Tribunal 3 being I.T.A. No. 795 (Bang)/2000. 3. In the appeal before the ITAT, the appellant not only claimed deduction in respect of loss of Rs.1,10,53,909/ arising on account of exchange fluctuation, but also set up a fresh claim in respect of revenue expenses to the tune of Rs.2,46,04,418/, erroneously capitalised in the returns. The ITAT entertained this fresh claim set forth by the appellant and recorded in its judgment that the department’s representative had no objection in that regard. Additionally, the ITAT adverted to the decision of this Court in National Thermal Power Co. Ltd. vs. Commissioner of Income Tax4 in support, for entertaining fresh claim of the appellant in exercise of powers under Section 254 of the 1961 Act. The ITAT, in the first place, reversed the finding given by CIT(A) regarding application of Section 43A of the 1961 Act. The ITAT opined that the said provision had no application to the fact situation of the present case. Having said that, it then proceeded to consider the question whether the loss suffered by the appellant owing to exchange 2 for short, “CIT(A)” 3 for short, “ITAT” 4 (1997) 7 SCC 489

fluctuation can be regarded as revenue expenditure or capital expenditure incurred by the appellant, and answered the same in favour of the appellant by holding that it would be a case of expenditure on revenue account and an allowable deduction. The ITAT answered the same in the following words: “….. So far as the argument whether the impugned expenditure or loss is revenue or capital in nature we find that the funds borrowed were utilised for the purposes of regular finance business carried on by the assessee. Such an income has also been offered for taxation and accepted by the department. Quantification of exchange fluctuation loss has been done as per rule 115 of the I T Rules.

Said rule must be applied in computing the total income of the assessee had held by the Supreme Court in CIT vs. Chowgule Co Ltd. – 218 ITR 384. Further the exchange fluctuation loss is an expenditure incidental to carrying on of business and comes within the purview of section 37 of the Act as the same is incurred wholly and exclusively for the purposes of business. It is nobody’s case that the funds borrowed in foreign exchange have been diverted for nonbusiness purposes. In such a case the decision of the Supreme Court in India Cement Case (supra) fully covers the issue in favour of the assessee. We also find that in this case, assessee’s claim satisfies all the tests laid down by Supreme Court in 124 ITR 1 extracted supra.

In this case entire borrowal of loan and the utilisation of the same, is in trading operations of the company more profitably and the fixed capital in this case is untouched. Hence the expenditure is on revenue account and allowable. We also find the loss incurred by the assessee cannot be treated as contingent in nature as the loss on account of foreign exchange fluctuation has been quantified in terms of rule 115 of IT Rules and further the liability is real as per terms of the agreement with CDC. Just because the liability is payable in future does not covert the actual liability into contingent liability as held by the Supreme Court in Calcutta Co Ltd. vs.

Appellant / petitioner / assessee submissions

we allow the entire claim of Rs.3,56,57,727/. We direct the AO to do so. This issue is held in favour of the assessee.” (emphasis supplied) 4. The matter was carried before the High Court by the department. Amongst others, following questions were formulated for consideration as substantial questions of law concerning subject deduction claimed by the appellant. The same read thus: “(3) Whether on facts and in the circumstances of the case, the Tribunal is justified in deleting the disallowance of claim to the tune of Rs.1,10,53,509/ for the assessment year 199798 in respect of exchange fluctuation that was made by the Assessing Officer? (in ITA No. 633/2004 only). (4) Whether on facts and in the circumstances of the case, the Tribunal is justified in allowing the additional claim of Rs.2,46,04,418.00 for the assessment year 199798 holding that the capitalisation of the said sum is to be treated as revenue expenses? (in ITA No. 633/04 only).” The High Court vide impugned judgment has reversed the view taken by the ITAT, mainly observing that the ITAT had not recorded sufficient reasons in support of its conclusion and in any case, the conclusion was without any basis. 5. We have heard Mr. S. Ganesh, learned senior counsel for the appellant and Mr. Vikramjit Banerjee, learned Additional Solicitor General appearing for the respondent.

Revenue / respondent submissions

the High Court has not even adverted to the aforementioned reported decisions, much less its usefulness in the present case. 10. The learned ASG appearing for the department had faintly argued that since the appellant in its return had taken a conscious explicit plea with regard to the part of the claim being ascribable to capital expenditure and partly to revenue expenditure, it was not open for the appellant to plead for the first time before the ITAT that the entire claim must be treated as revenue expenditure. Further, it was not open to the ITAT to entertain such fresh claim for the first time. This submission needs to be stated to be rejected. In the first place, the ITAT was conscious about the fact that this claim was set up by the appellant for the first time before it, and was clearly inconsistent and contrary to the stand taken in the return filed by the appellant for the concerned assessment year including the notings made by the officials of the appellant. Yet, the ITAT entertained the claim as permissible, even though for the first time before the ITAT, in appeal under Section 254 of the 1961 Act, by relying on the dictum of this Court in National Thermal Power Co. Ltd. 9. Further, the ITAT has also expressly recorded the no objection given by the representative of the department, allowing the appellant to set up the fresh claim to treat 9 supra at footnote No. 4

the amount declared as capital expenditure in the returns (as originally filed), as revenue expenditure. As a result, the objection now taken by the department cannot be countenanced. 11. Learned ASG had placed reliance on the decision of this Court in Goetze (India) Ltd. vs. Commissioner of Income Tax 10 in support of the objection pressed before us that it is not open to entertain fresh claim before the ITAT. According to him, the decision in National Thermal Power Co. Ltd. 11 merely permits raising of a new ground concerning the claim already mentioned in the returns and not an inconsistent or contrary plea or a new claim. We are not impressed by this argument. For, the observations in the decision in Goetze (India) Ltd.12 itself make it amply clear that such limitation would apply to the “assessing authority”, but not impinge upon the plenary powers of the ITAT bestowed under Section 254 of the Act. In other words, this decision is of no avail to the department. 12. Learned counsel for the department had also relied on the decision of this Court in Assistant Commissioner of Income Tax, Vadodara vs. Elecon Engineering Company Limited 13. This 10 [2006] 284 ITR 323 11 supra at footnote No. 4 12 supra at footnote No. 10 13 (2010) 4 SCC 482

Court / Tribunal analysis and reasoning

The test of enduring benefit is therefore not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case. ….. xxx xxx xxx 11. ….. “ What is an outgoing of capital and what is an outgoing on account of revenue depends on what the expenditure is calculated to effect from a practical and business point of view rather than upon the juristic classification of the legal rights, if any, secured, employed or exhausted is the process.” The question must be viewed in the larger context of business necessity or expediency. …..” (emphasis supplied) 9. A priori, we are of the considered opinion that the analysis 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,

Operative decision and relief

decision is on the question of application of Section 43A of the 1961 Act. Accordingly, the exposition in this decision will be of no avail to the fact situation of the present case. For, we have already noticed that the appellant had not acquired any asset from any country outside India for the purpose of his business. 13. In view of the above, this appeal ought to succeed. The impugned judgment and order of the High Court needs to be set aside and instead, the decision of the ITAT dated 3.6.2004 in favour of the appellant on the two questions examined by the High Court in the impugned judgment, needs to be affirmed and restored. We order accordingly. 14. As a result of allowing the entire claim of the appellant to the tune of Rs.3,56,57,727/ being revenue expenditure, suitable amends will have to be effected in the final assessment order passed by the assessing officer for the concerned assessment year, thereby treating the consequential benefits such as depreciation availed by the appellantassessee in relation to the stated amount towards exchange fluctuation related to leased assets capitalised (being Rs.2,46,04,418/), as unavailable and nonest.

15. The appeal is allowed in the above terms with no order as to costs. Pending interlocutory applications, if any, stand disposed of. ..……………………………J. (A.M. Khanwilkar) ………………………………J. (Abhay S. Oka) ………………………………J. (C.T. Ravikumar) New Delhi; April 12, 2022.

Mr. Preetesh Kapur, Sr. Adv. Mr. Senthil Jagadeesan, AOR Ms. Sonakshi Malhan, Adv. UPON hearing the counsel the Court made the following O R D E R Civil Appeal No. 6677/2008 The appeal is allowed in terms of the signed reportable order. Pending applications, if any, shall stand disposed of. SLP(C) No. 9274/2009, C.A. Nos. 2666/2011, 7906/2009 and 2696/2010.__________________________ It is agreed that these matters involve different questions than the leading case (C.A.No.6677/2008), listed today. Hence, de-linked. List these matters next week. (NEETU KHAJURIA) COURT MASTER (VIDYA NEGI) COURT MASTER (Signed reportable order in C.A. No.6677/2008 is placed on the file.)

Ratio and legal principle

The narrow proposition associated with WIPRO Finance Limited v. CIT concerns wipro finance limited vs cit(supreme court of india) date-12th april,2022 sub-whether foreign exchange fluctuation of rs 1.10 crore incurred for the purpose of borrowing in the business of financing and leasing is a revenue expenditure allowable u/s 37 and also whether the itat has power to entertain a new claim of rs. 2.46 crores for the first time- decision in the case of ntpc and goetze(india) limited explained. the hon’ble three judges bench of supreme court in this case was considering assessee’s appeal against the order of the high court which had reversed the findings of itat that the expenditure of rs 1.10 crore towards foreign exchange fluctuation loss was a revenue expenditure. the hon’ble court based on the famous decision in the case of india cement as well as empire jute held that as no new asset was created ,the expenditure was fully allowable. also the court upheld the… The proposition cannot be separated from the judgment’s facts, the governing statutory version, the forum’s jurisdiction, and the exact relief recorded in CIVIL APPEAL NO. 6677 OF 2008.

For working-paper purposes, the decision should be cited only after matching the material facts and reading the passages under the judgment-grounded record above. The editorial outcome label “Quashed / set aside” is a navigation aid; it does not replace the operative order or explain every issue in a multi-issue case.

Why this judgment matters

This decision is relevant when a file raises the same central question identified in the source headnote: WIPRO Finance Limited Vs CIT(Supreme Court of India) Date-12th April,2022 Sub-Whether foreign exchange fluctuation of Rs 1.10 crore incurred for the purpose of borrowing in the business of financing and leasing is a revenue expenditure allowable u/s 37 and also whether the ITAT has power to entertain a new claim of Rs. 2.46 crores for the first time- decision in the case of NTPC and Goetze(India) limited explained. The Hon’ble three judges bench of Supreme Court in this case was considering assessee’s appeal against the order of the High court which had reversed the findings of ITAT that the expenditure of Rs 1.10 crore towards foreign exchange fluctuation loss was a revenue expenditure. The Hon’ble Court based on the famous decision in the case of India Cement as well as Empire Jute held that as no new asset was created ,the expenditure was fully allowable. Also the Court upheld the… Its practical value lies in the way the Supreme Court of India connected the governing provisions—Section 37; 43A and 254 of Income-tax Act; 1961—to the procedural posture and evidence before it.

The authority level is Supreme Court. That affects persuasive or binding weight, but authority level alone is never enough. Territorial jurisdiction, statutory period, the identity of the challenged order, and later appellate treatment must all be checked before the case is used in advice, a submission, or litigation strategy.

Practitioner action points

• Begin with the complete judgment and mark the paragraphs supporting the exact proposition relied upon.
• Match the statutory version of Section 37; 43A and 254 of Income-tax Act; 1961 and the decision date 2022-04-12; do not assume the current text is identical.
• Compare the notice, assessment, appeal or other procedural sequence with the chronology recorded in this case.
• Verify the stated later-history status and any review, appeal, SLP, curative or rectification proceedings before citation.
• Record why the client’s evidence is materially similar, and also record any fact capable of distinguishing the result.

Does this case match your facts?

Detailed reliance and distinction analysis

Identity check. Confirm that the cited cause title is WIPRO Finance Limited v. CIT, the proceeding is CIVIL APPEAL NO. 6677 OF 2008, and the decision is dated 2022-04-12. These fields are taken from the judgment record and should appear exactly in the citation note.

Bench check. The judgment identifies the coram as Hon'ble Mr. Justice A.M. Khanwilkar; Hon'ble Mr. Justice Abhay S. Oka; Hon'ble Mr. Justice C.T. Ravikumar. A later order by another bench, a larger bench, or a higher forum may alter the weight or interpretation of the proposition.

Provision check. The source associates the dispute with Section 37; 43A and 254 of Income-tax Act; 1961. The practitioner should place the historical statutory text next to the current text and identify every amendment, proviso, explanation, rule or notification that could change the analysis.

Fact check. The source issue is not a free-standing abstract rule. It arises from the concrete record summarized above. A reliable application note should list the common facts, the different facts, and whether each difference affects jurisdiction, admissibility, limitation, burden, computation or relief.

Remedy check. The recorded result is Quashed / set aside. Where a matter is remanded, set aside, partly allowed, or disposed with directions, the exact operative language is more important than a binary winner/loser label.

History check. The current closure state is REVIEW_CURATIVE_DOCKET_CHECK_PENDING. If that state is pending, the page does not assert that no later case exists. It means the check remains open and must be completed at the point of professional reliance.

Section / provision impact

• Section 37 — apply the exact version considered in the judgment.
• 43A and 254 of Income-tax Act — apply the exact version considered in the judgment.
• 1961 — apply the exact version considered in the judgment.

Case network

• OERLIKON BALZERS COATING INDIA PRIVATE LIMITED VS. UNION OF INDIA & ANR — Court / Tribunal to be verified · Quashed / set aside
• UCB India Pvt. Ltd. vs. ACIT — Supreme Court of India · Quashed / set aside
• SPL Labs India Pvt ltd Vs ITO,Circle 6 Bangalore — Supreme Court of India · Quashed / set aside
• M/s Suneja Towers Private Limited & Anr Vs Anita Merchant — Supreme Court of India · Quashed / set aside

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