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Commissioner Of Income-Tax v. Calcutta Electric Supply Corporation Ltd.

Calcutta High Court

Sep 8, 1986

Judgment

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Judgment Summary — Calcutta Electric Supply Corporation Ltd. (Reference)

Factual and Procedural Background

This reference arises from the assessment of Calcutta Electric Supply Corporation Ltd. (the assessee) for the assessment year 1967-68 (accounting year ending 31 March 1967). On applications made by both the assessee and the Revenue under section 256(1) of the Income-tax Act, 1961, the Tribunal referred five questions of law to this Court for its opinion. The questions concerned (i) allowance of an actuarial valuation for gratuity (Rs. 13,65,116) as a deduction, (ii) the basis for determining written down value of fixed assets of a sterling company maintaining accounts in pound sterling with reference to exchange rates, (iii) revision of written down value for service lines acquired prior to 1 April 1961 in light of the 1961 Act’s definition of “actual cost”, (iv) disallowance of a loss of Rs. 51,844 suffered on remittance of profits to the head office in the U.K. because of exchange fluctuations, and (v) whether additional expenses of Rs. 15,73,806 incurred on redeeming sterling debentures after rupee devaluation constituted an allowable business expenditure.

The Court delivered answers to each of the five referred questions, applying prior decisions of this Court and the Supreme Court as discussed below, and issued certificates permitting appeals in respect of three of the questions.

Legal Issues Presented

Whether the actuarial valuation of Rs. 13,65,116 for gratuity payable under the Industrial Employment (Standing Orders) Act, 1946 and provisions of the Industrial Disputes Act, 1947, constituted an allowable deduction in computing business profits for assessment year 1967-68?
Whether, for a sterling company maintaining accounts in pound sterling, the written down value of fixed assets should be determined on the basis of the rate of exchange with reference to the date of contract, date of delivery, or date of payment for assessment year 1967-68?
Whether revision of the written down value of assets (service lines) acquired prior to 1 April 1961 — previously correctly arrived at under the Indian Income-tax Act, 1922 — was required for assessment year 1967-68 by virtue of the definition of "actual cost" introduced by the Income-tax Act, 1961, with effect from assessment year 1962-63?
Whether the disallowance of a loss of Rs. 51,844, suffered by the company on remittance of profits from Calcutta to its U.K. head office because of exchange rate fluctuations, was correct?
Whether the additional expenses of Rs. 15,73,806 incurred by the assessee due to devaluation of the Indian rupee in redeeming its sterling debentures constituted an allowable deduction in computing business income for assessment year 1967-68?

Arguments of the Parties

Assessee's Arguments

On Question No. 1, the assessee relied on this Court's decision in Commissioner Of Income-Tax (Central-I) v. Eastern Spinning Mills Ltd. ([1980] 126 ITR 686) and the Supreme Court decision in CIT v. Andhra Prabha (P) Ltd. ([1986] 158 ITR 416) to support allowability of the actuarial gratuity valuation.
The assessee contended that a statutory liability for gratuity had accrued in the previous year under the Industrial Employment (Standing Orders) Act, 1946 and under an award under the Industrial Disputes Act, 1947; the sum could be actuarially ascertained and was a revenue expenditure. It argued the absence of an explicit provision in the accounts was immaterial and relied on Kedarnath Jute Mfg. Co. Ltd. v. CIT ([1971] 82 ITR 363) and Commissioner Of Income-Tax v. Shyam Nagar Tin Factory (P.) Ltd. ([1984] 150 ITR 617) to show entitlement to deduction despite no provision in the books.
On Question No. 5, the assessee relied on Oil India Co. Ltd. v. CIT ([1982] 137 ITR 156) where additional liability due to devaluation was held deductible where the loan had been obtained for meeting revenue expenditure directly related to the business.
At the conclusion of the hearing, the assessee sought certificates under the relevant provisions that Questions Nos. 2, 3 and 5 were substantial questions of law fit for appeal to the Supreme Court, relying on earlier certificates granted in related cases.

Revenue's Arguments

On Question No. 1, the Revenue relied on Shree Sajjan Mills Ltd. v. CIT ([1985] 156 ITR 585), which reiterated the principles in Metal Box Company Of India Ltd. v. Workmen ([1969] 73 ITR 53), contending the assessee could claim an estimated liability under a gratuity scheme only if it chose to provide for it in its profit and loss account; and that, in the instant case, no provision had been made.
On Question No. 5, the Revenue relied on Bestobell (India) Ltd. v. Commissioner Of Income-Tax, West Bengal-V ([1979] 117 ITR 789), arguing that extra expenditure incurred as a result of devaluation in repaying loans used to finance capital expenditure was not revenue in nature but capital.
For Questions Nos. 2 and 3, the Revenue's position is reflected in the Tribunal's reference, and this Court followed earlier decisions of this Court that the statutory provisions control computation of written down value.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Calcutta Electric Supply Corporation Ltd. v. Addl. CIT, [1982] 136 ITR 777	Determination of written down value for a sterling company in relation to exchange rate timing (relevant to Question No. 2).	The Court followed this decision and answered Question No. 2 in the affirmative and in favour of the Revenue.
Riverside (Bhatpara) Electric Supply Co. Ltd. v. CIT, [1977] 109 ITR 399	Computation of written down value in accordance with the Income-tax Act, 1961, including for assets in use prior to 1 April 1961 (relevant to Question No. 3).	The Court followed this decision and held that written down value is to be computed in accordance with the 1961 Act even for assets in use before 1 April 1961 (answered Question No. 3 accordingly).
Sutlej Cotton Mills Ltd. v. Commissioner Of Income-Tax, West Bengal, [1971] 81 ITR 641 (Cal)	Held that loss arising out of change in exchange rate on remittance of profit was not an allowable business expenditure (as relied on by the Appellate Assistant Commissioner).	The Court noted this decision had been partly overruled by the Supreme Court in Sutlej Cotton Mills Ltd. v. CIT ([1979] 116 ITR 1) and did not follow it as decisive against the assessee in Question No. 4.
Sutlej Cotton Mills Ltd. v. CIT, [1979] 116 ITR 1 (Supreme Court)	Partly overruled the earlier Sutlej Cotton Mills decision; relevant to whether exchange losses on remittance are allowable.	The Court observed that the earlier Calcutta decision had been partly overruled and therefore relied on subsequent Supreme Court authority and other relevant decisions to allow the deduction in Question No. 4.
CIT v. Tingri Tea Company Ltd., [1971] 79 ITR 294	Where money was borrowed in India and deposited in U.K. banks for payment of dividends to non-resident shareholders, such transactions were for the purpose of the assessee's business.	The Court relied on this authority to hold that the extra amount paid on remittance of dividends (Question No. 4) was a legitimate business expenditure deductible as business expenditure.
Kedarnath Jute Mfg. Co. Ltd. v. CIT, [1971] 82 ITR 363 (SC)	Observation that entitlement to a deduction depends on the law and not on entries in books of account; absence of an entry cannot debar a deduction if law allows it.	The Court cited this case to support the proposition that absence of a provision in the books does not prevent allowance of a statutory liability (applied in answering Question No. 1 in favour of the assessee).
Commissioner Of Income-Tax v. Shyam Nagar Tin Factory (P.) Ltd., [1984] 150 ITR 617 (Cal)	Where a statutory liability to pay gratuity arose in the relevant accounting period, a deduction was allowable even if no provision had been made in accounts.	The Court followed this decision and, on the facts that the statutory gratuity liability had arisen and been actuarially valued, allowed the deduction in Question No. 1.
Commissioner Of Income-Tax (Central-I) v. Eastern Spinning Mills Ltd., [1980] 126 ITR 686	Authority relied upon by the assessee supporting allowability of certain gratuity-related deductions (cited by the assessee in Question No. 1).	The Court considered the authority raised by the assessee but ultimately answered Question No. 1 in favour of the assessee on the basis of Tribunal findings and other supporting authority (Shyam Nagar Tin Factory and Kedarnath Jute).
CIT v. Andhra Prabha (P) Ltd., [1986] 158 ITR 416 (SC)	Supreme Court authority cited by the assessee in support of its position on gratuity deduction.	The Court noted the citation as supporting the assessee's position on Question No. 1 in argument; the Court's ultimate allowance of the deduction aligns with the assessee's authorities.
Shree Sajjan Mills Ltd. v. CIT, [1985] 156 ITR 585 (SC)	Reiterated principles (including Metal Box) that an assessee could claim deduction of estimated gratuity liability if it had chosen to provide for it in profit & loss account; relevant to whether absence of provision precludes deduction.	The Court considered this authority cited by the Revenue but distinguished it on the facts: here the statutory liability had accrued and was actuarially valued and the assessee followed mercantile accounting, so deduction was allowed.
Metal Box Company Of India Ltd. v. Workmen, [1969] 73 ITR 53	Principles regarding claims of estimated liabilities and their recognition in accounts (referred to in Shree Sajjan Mills authority).	The Court acknowledged the principles but relied on later authorities and the facts (accrual of statutory liability) to permit deduction under Question No. 1.
Bestobell (India) Ltd. v. Commissioner Of Income-Tax, West Bengal-V, [1979] 117 ITR 789 (Cal)	Held that extra expenditure incurred on repayment of a loan as a result of devaluation was not an expenditure of revenue nature but of capital nature where the loan was used to finance capital expenditure.	The Court treated this decision as closely analogous on the facts and followed it to answer Question No. 5 in the negative and in favour of the Revenue (held the additional expenditure to be capital in nature and not deductible as revenue expenditure).
Oil India Co. Ltd. v. CIT, [1982] 137 ITR 156 (Cal)	Held that where sterling loans were obtained in England to meet revenue expenditure directly related to business, an extra liability due to devaluation was a revenue loss deductible as a business loss.	The Court distinguished Oil India on the facts, noting that in the present case debenture money had been used to finance capital expenditure; therefore Oil India did not warrant allowing deduction in the instant facts.
CIT v. Martin and Harris P. Ltd., [1985] 154 ITR 460	Mentioned in context of prior instances where this Court granted certificates that questions were substantial for appeal to the Supreme Court.	The Court noted that certificates had been granted in that case previously; the Court granted certificates in the present matter for Questions Nos. 2, 3 and 5.

Court's Reasoning and Analysis

The Court considered each referred question by comparing the facts found by the Tribunal and the parties' authorities, and by applying relevant principles from earlier decisions.

Question No. 2: The Court observed that this question was covered by a prior decision of this Court in Calcutta Electric Supply Corporation Ltd. v. Addl. CIT ([1982] 136 ITR 777). Following that decision, the Court answered Question No. 2 in the affirmative and in favour of the Revenue.
Question No. 3: The Court found this question was covered by Riverside (Bhatpara) Electric Supply Co. Ltd. v. CIT ([1977] 109 ITR 399) and followed that decision. The Court held that the written down value is to be computed in accordance with the provisions of the Income-tax Act, 1961 even with reference to assets in use in the previous year prior to 1 April 1961.
Question No. 4: The Court set out the relevant facts: the assessee periodically remitted profits to its U.K. head office for dividend payments; due to exchange fluctuations the assessee had to remit an extra amount of Rs. 51,844 and claimed that amount as a deduction. The Income-tax Officer disallowed the claim, and the Tribunal upheld that disallowance relying on earlier Calcutta authority (Sutlej Cotton Mills). The Court noted that the earlier Sutlej decision had been partly overruled by the Supreme Court (Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1). Relying on CIT v. Tingri Tea Company Ltd. ([1971] 79 ITR 294), which treated borrowing and depositing funds for payment of dividends as for the purpose of business, the Court concluded that once a dividend was declared a company was bound to pay it and a liability arose that had to be met. The extra amount paid for remittance of dividends was therefore held to be a legitimate business expenditure and deductible. The Court answered Question No. 4 in the negative and in favour of the assessee.
Question No. 1: The Court reviewed competing authorities. The Revenue relied on Shree Sajjan Mills Ltd. (which reiterated Metal Box principles) to argue that an assessee who did not make a provision in the accounts could not claim the estimated liability. The assessee relied on Kedarnath Jute and on this Court's Shyam Nagar Tin Factory decision, arguing that entitlement depends on law and not on entries in the books and that a statutory liability that has accrued and been actuarially valued is deductible. The Tribunal had found as a fact that the statutory liability for gratuity had arisen in the relevant previous year, had been actuarially valued, and represented revenue expenditure — facts not disputed by the Revenue. The Court held that absence of a provision in the books could not affect allowability where the liability had accrued and the assessee followed mercantile accounting. Following Shyam Nagar Tin Factory and Kedarnath Jute, the Court answered Question No. 1 in the affirmative and in favour of the assessee.
Question No. 5: The Court considered two competing strands of authority. Bestobell (India) Ltd. (Division Bench of this Court) held that extra expenditure incurred as a result of devaluation to repay a loan used to finance capital expenditure was capital in nature and not revenue. Oil India Co. Ltd. held that where sterling loans were obtained to meet revenue expenditure directly related to business, extra liability from devaluation was revenue in nature and deductible. The Court examined the facts and found that in the instant case the moneys borrowed on debentures were utilised by the assessee not for business (revenue) purposes but for financing a capital expenditure programme in India. On the basis that the facts more closely matched Bestobell, and that Oil India did not take a different view of law but applied earlier decisions in part, the Court held the extra expenditure to be of capital nature and not deductible. The Court answered Question No. 5 in the negative and in favour of the Revenue.
Certificates for appeal: The Court allowed the assessee's prayer for certificates that Questions Nos. 2, 3 and 5 were substantial questions of law fit for appeal to the Supreme Court, noting that the Court had previously granted certificates in related matters.
Costs: The Court ordered that there would be no order as to costs.

Holding and Implications

Holding:

Question No. 1: Answered in the affirmative and in favour of the assessee — the actuarial valuation of the gratuity liability (found to have accrued and actuarially ascertained) was held to be an allowable deduction.
Question No. 2: Answered in the affirmative and in favour of the Revenue — the Court followed prior authority on the basis for determining written down value for a sterling company (as per the cited decision).
Question No. 3: Answered in favour of the Revenue — written down value is to be computed in accordance with the provisions of the Income-tax Act, 1961 even for assets in use prior to 1 April 1961.
Question No. 4: Answered in the negative and in favour of the assessee — the extra amount (Rs. 51,844) paid on remittance of profits by reason of exchange fluctuations was held to be a legitimate business expenditure deductible from income.
Question No. 5: Answered in the negative and in favour of the Revenue — the additional expenses (Rs. 15,73,806) incurred in redeeming sterling debentures after rupee devaluation were held to be capital in nature and not an allowable revenue deduction.

Implications:

The Court applied and followed existing precedents to resolve the referred questions; it did not announce a new principle of law beyond applying those authorities to the facts before it.
Direct consequences for the parties: The assessee succeeds on Questions Nos. 1 and 4 (allowance of the gratuity valuation and the exchange loss on remittance), while the Revenue succeeds on Questions Nos. 2, 3 and 5 (treatment of written down value and the characterisation of the devaluation-related debenture redemption expense as capital).
The Court granted certificates that Questions Nos. 2, 3 and 5 were substantial questions of law fit for appeal to the Supreme Court; the order for issue of the certificates was to be drawn up separately.
No order as to costs was made.

This summary is drawn exclusively from the provided opinion and does not add or infer facts or reasoning beyond those contained in that text.

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The Judgment of the Court was delivered by

Dipak Kumar Sen, J.:— This reference arises out of the assessment of the Calcutta Electric Supply Corporation Ltd., the assessee, in the assessment year 1967-68, the accounting year ending on March 31, 1967. On the applications of both the assessee and the Revenue under section 256(1) of the Income-tax Act, 1961, the Tribunal has referred the following questions as questions of law arising out of its order, for the opinion of this court:

“1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 13,65,116 being the actuarial valuation of the assessee's liability on account of gratuity as on March 31, 1967 in accordance with the Industrial Employment (Standing Orders) Act, 1946, and under the provisions of the Industrial Disputes Act, 1947, payable to its employees constituted an allowable deduction in the computation of the profits and gains of its business for the assessment year 1967-68?

2. Whether, on the facts and in the circumstances of the case, and having regard to the fact that the assessee is a sterling company maintaining accounts in pound sterling, the Tribunal was right in holding that the written down value of the fixed assets should be determined on the basis of the rate of exchange with reference to the date of contract or the date of delivery or the date of payment for the assessment year 1967-68?

3. Whether, on the facts and in the circumstances of the case, a revision of the written down value of the assets comprising service lines acquired prior to April 1, 1961, which written down value had been correctly arrived at under the Indian Income-tax Act, 1922, was required for the assessment year 1967-68 by virtue of the definition of ‘actual cost’ introduced by the Income-tax Act, 1961, with effect from the assessment year 1962-63?

4. Whether, on the facts and in the circumstances of the case, the Tribunal was right in upholding the disallowance of the loss of Rs. 51,844 suffered by the company on the remittance of the profits from Calcutta to its head office in the U.K?

5. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 15,73,806 being the additional expenses incurred by the assessee due to devaluation of Indian rupee in redeeming its Sterling Debentures constituted an allowable expenditure deductible in the computation of its business income in the assessment year 1967-68?”

2. Question No. 2 which has been referred at the instance of the assessee is covered by a decision of this court in the case of the same assessee in Calcutta Electric Supply Corporation Ltd. v. Addl. CIT, [1982] 136 ITR 777. Following the said decision, we answer the said question in the affirmative and in favour of the Revenue. Similarly, question No. 3 which has also been referred at the instance of the assessee is covered by a decision of this court in Riverside (Bhatpara) Electric Supply Co. Ltd. v. CIT, [1977] 109 ITR 399. Following the said decision, we answer this question by stating that the written down value is to be computed in accordance with the provisions of the Act of 1961 even with reference to assets in use in the previous year prior to the April 1, 1961.

3. The facts relevant to question No. 4 which has been referred at the instance of the assessee are, inter alia, that the assessee remitted its profits to its head office in the United Kingdom periodically for payment of dividends to the foreign shareholders. Any surplus remaining after such distribution in the United Kingdom was invested. During the relevant previous year, by reason of fluctuations in the rate of exchange, the assessee suffered a loss in the sense that it had to remit an extra amount of Rs. 51,844 for payment of such dividend. The assessee claimed deduction of the said amount from its total income. The Income-tax Officer disallowed the claim. On appeal, the Appellate Assistant Commissioner held that the assessee was not entitled to such deduction inasmuch as the same did not fall within section 36 of the Income-tax Act, 1961. The Appellate Assistant Commissioner held further that this was not an expenditure laid out or expended wholly or exclusively for the purpose of business of the assessee under section 37 of the Act. Sutlej Cotton Mills Ltd. v. Commissioner Of Income-Tax, West Bengal.*, [1971] 81 ITR 641 (Cal), the Appellate Assistant Commissioner held that the loss arising out of the change in the rate of exchange in the remittance, of the profit was not an allowable business expenditure. The Tribunal upheld the decision of the Appellate Assistant Commissioner.

4. We note that the decision of this court in Sutlej Cotton Mills Ltd., [1971] 81 ITR 641 has been partly overruled by the Supreme Court in Sutlej Cotton Mills Ltd. v. CIT, [1979] 116 ITR 1. In our view, once dividend was declared, the assessee as a company was bound to pay the same to the shareholders and a liability arose which had to be met by the assessee. As has been held by this court in CIT v. Tingri Tea Company Ltd. [1971] 79 ITR 294, where money was borrowed in India on an overdraft account and deposited in the United Kingdom banks for the purpose of payment of dividends to the non-resident shareholders, the said transaction was for the purpose of business of the assessee. In that view, the extra amount which had to be paid by the assessee in the instant case for the purpose of remittance of dividends must be held to be for a similar purpose, viz., for the business of the assessee and to that extent there is no reason why the same should not be considered to be a legitimate business expenditure of the assessee and deductible.

5. Accordingly, we answer question No. 4 in the negative and in favour of the assessee.

6. We now take up for consideration questions Nos. 1 and 5, both of which have been referred at the instance of the Revenue.

7. On question No. 1, learned advocate for the assessee submitted that the controversy raised in the question was covered by a decision of this court in Commissioner Of Income-Tax (Central-I) v. Eastern Spinning Mills Ltd., [1980] 126 ITR 686 and should be answered in favour of the assessee. Learned advocate for the assessee also relied on a decision in the case of CIT v. Andhra Prabha (P) Ltd., [1986] 158 ITR 416 (SC), where the same view was taken.

8. Learned advocate for the Revenue contended on the other hand that the decisions cited on behalf of the assessee were distinguishable on the facts of the case, inasmuch as in the instant case, the assessee had not made any provision for payment of the said liability on account of gratuity. In support of his contention, the learned advocate for the Revenue cited Shree Sajjan Mills Ltd. v. CIT, [1985] 156 ITR 585. In this case, the Supreme Court reiterated the principles laid down in Metal Box Company Of India Ltd. v. Workmen, [1969] 73 ITR 53 and noted that the assessee could claim deduction of an estimated liability under a gratuity scheme, if it chose to provide for the same in its profit and loss account. The Supreme Court further analysed the decisions as prevailing before section 40A(7) was inserted in the Income-tax Act, 1961, in 1973 and laid down that a provision made for payment of gratuity, which would become due and payable in the previous year, would be allowable as an expenditure of the previous year on accrual basis, when the mercantile system of accounting was followed by the assessee.

9. Learned advocate for the assessee contended in reply that in the instant case, it has been found as a fact that the liability had accrued in the previous year under the Industrial Employment (Standing Orders) Act, 1946, and also under an award passed by the Industrial Tribunal under the Industrial Disputes Act, 1947, which provided for payment of gratuity to its employees. The amount of such gratuity payable could be ascertained actuarially. He submitted that when the liability admittedly accrued, it was immaterial whether any provision had been made in the accounts for the payment of the same and the assessee could always claim deduction of the same. In support of his contention, the learned advocate for the assessee cited Kedarnath Jute Mfg. Co. Ltd. v. CIT, [1971] 82 ITR 363, where the Supreme Court observed as follows (at page 367):

“We are wholly unable to appreciate the suggestion that if an assessee under some misapprehension or mistake fails to make an entry in the books of account and although, under the law, deduction must be allowed by the Income-tax Officer, the assessee will lose the right of claiming or will be debarred from being allowed that deduction. Whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might take of his rights nor can the existence or absence of entries in the books of account be decisive or conclusive in the matter.”

10. The learned advocate for the assessee also cited another decision of this court in Commissioner Of Income-Tax v. Shyam Nagar Tin Factory (P.) Ltd., [1984] 150 ITR 617, where it was held that where statutory liability of the assessee arose under the West Bengal Employees' Payment of Compulsory Gratuity Act, 1971, which had come into force for the first time in the relevant accounting period, although the assessee had not made any provision for the liability, it was entitled to a deduction. Following the decision in the case of Kedarnath Jute Mfg. Co. Ltd., [1971] 82 ITR 363 (SC), it was held that whether the assessee was entitled to a particular deduction or not will depend on the law applicable and not on the view which the assessee might take of its rights. The existence or absence of entries in the books of account will be neither decisive nor conclusive.

11. It appears to us that in the instant case, the Tribunal has found as a fact that the statutory liability for payment of gratuity by the assessee had arisen in the relevant previous year. The said liability had been actuarially valued and it represented a revenue expenditure. These facts are not disputed by the Revenue. Absence of a provision for meeting the said liability in the books of the assessee, in our view, cannot make any difference as to the allowability of such liability. It is not disputed that the assessee follows the mercantile system of accounting and that there has been an accrual of the said liability in the relevant accounting year. Following Shyamnagar Tin Factory (P.) Ltd., [1984] 150 ITR 617 (Cal), we answer question No. 1 in the affirmative and in favour of the assessee.

12. The controversy raised in question No. 5, in our view, is covered by a decision of a Division Bench of this court in the case of Bestobell (India) Ltd. v. Commissioner Of Income-Tax, West Bengal-V, [1919] 117 ITR 789. The facts in that case are more or less identical to the facts before us. In that case, as a result of devaluation, the assessee had to incur an extra expenditure to repay a loan. It was held that the extra expenditure was not incurred for the purpose of securing the loan and that the same was inextricably connected with the assessee's indebtedness. It was held further that the said extra expenditure was not an expenditure of a revenue nature but was of a capital nature.

13. Learned advocate for the assessee however contended that the controversy raised in the question was covered by another decision of this court in Oil India Co. Ltd. v. CIT, [1982] 137 ITR 156. In that case, the assessee had obtained loans in sterling in England for the purpose of meeting its revenue expenditure directly related to its business. The assessee maintained its accounts on mercantile basis. In the accounting year involved, due to the devaluation of the Indian rupee, the assessee incurred a liability to pay an extra amount and claimed the same as a business expenditure. It was not disputed that the additional liability was in the nature of revenue. On the facts, it was held that the assessee having borrowed the money was temporarily the owner of the fund and if the assessee had to incur an additional liability in respect of the same, the same would be a loss in connection with or arising out of its business. It was held that such loss was deductible as a business loss.

14. In the facts of the instant case, the money borrowed on debentures has been found to be utilised by the assessee not for the business of the company but for financing a capital expenditure programme of the assessee in India.

15. The facts of this case, it appears, are similar and conform more to the facts of Bestobell (India) Ltd., [1979] 117 ITR 789 (Cal) rather than to the facts in Oil India Co. Ltd., [1982] 137 ITR 156 (Cal). The decision in Oil India Co. Ltd. 's case, in our view, did not in any event take a different view of law from that in Bestobell (India) Ltd. 's case and, on the other hand, applied the earlier decision in part. For the reasons as aforesaid, we answer question No. 5 in the negative and in favour of the Revenue.

16. At the conclusion of the judgment, learned advocate for the assessee prayed for a certificate to the effect that issues arising from questions Nos. 2, 3 and 5 were substantial questions of law and a certificate should be given that the same were fit for appeal to the Supreme Court. It was submitted that such certificate had already been granted by this court in the cases of Riverside (Bhatpara) Electric Supply Co. Ltd. [1977] 109 ITR 399, CIT v. Martin and Harris P. Ltd., [1985] 154 ITR 460 and in Calcutta Electric Supply Corporation Ltd. v. Addl. CIT, [1982] 136 ITR 777. The prayer of the assessee is allowed. Let a certificate be issued in respect of questions Nos. 2, 3 and 5 as prayed for. Let the order for issue of the certificates be drawn up separately.

17. In the facts and circumstances, there will be no order as to costs.

Monjula Bose, J.:— I agree.