OIL AND NATURAL GAS CORPORATION LTD., DEHRADUN THROUGH MANAGING DIRECTORversusTHE COMMISSIONER OF INCOME TAX, DEHRADUN

                        (2010] 3 S.C.R. 386


A        OIL AND NATURAL GAS CORPORATION LTD.,
         DEHRADUN THROUGH MANAGING DIRECTOR
                                 v.
     THE COMMISSIONER OF INCOME TAX, DEHRADUN
             (Civil Appeal No. 7223 of 2008)
B
                         MARCH 15, 2010
               [D.K. JAIN AND T.5. THAKUR, JJ.]

        Income Tax Act, 1961:
c
        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.

        The appellant-assessee is a . public sector
  undertaking, engaged in capital intensive exploration and
  production of petroleum products for which it has to
                                                               8
  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
                                                                   E
 . 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,          F
   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.
                                                                   G
       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          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
  consideration both in the revenue account and capital
0
  account as also on loans used partly in revenue account
  and partly in capital account, made on the ground that it
  had followed mercantile system of accounting in this
  regard, was disallowed by the Assessing Officer.
  According to the Assessing Officer, such a loss could be
E allowed to the Assessee on discharge of liability at the
  time of actual repayment of these loans.

       The assessee preferred appeals before the
  Commissioner of Income Tax (Appeals). Insofar as
F assessee's claim for foreign exchange loss in revenue
  acco.unt was concerned, the Commissioner (Appeals)
  affirmed the view taken by the Assessing Officer on the
  ground that it was a notional liability and the same had
  not crystallised or accrued in the relevant assessment
G year. However, as regards the adjustment for increased
  liability made by the Assessee for the pu!poses of
  Section 43A of the Act in respect of foreign exchange
  loans in capital account, which were outstanding as on
  31st March, 1991, the Commissioner accepted the stand
H of the assessee and directed the Assessing Officer to
  OIL AND NATURAL GAS CORP. LTD. M. D. v. COMMNR. 389
             OF INCOME TAX, DEHRADUN

   allow the benefit of such increased liability for            A
   computation of depreciation allowance on plant and
   machinery purchased out of such foreign exchange loans
 . for the assessment year under consideration.

      The Assessee and the Revenue filed cross-appeals          B
  before the Income Tax Appellate Tribunal. The Trib.unal
  held that the loss claimed by the assessee on revenue
  account was allowable under Section 37(1) of the Act.
  The appeal preferred by the Revenue on the question
  whether the Assessee was entitled to adjust the actual        c
  cost of imported assets acquired in foreign currency on
  account of fluctuatidn in the rate of exchange, in terms
  of Section 43A of the Act, was dismissed.

          The Revenue filed appeal before the High Court. By
     a common judgment pertaining to the assessment years       D
     199'1-92 to 1994-95 and 1997-98, the High Court reversed
"""
   · tbe decision of the Tribunal on both the issues.
                  .        '>L

       In appeals to this Court, the questions which arose
  for determination were :- (i) Whether on the facts and E
  circumstances of the case, the additional Ua_bility arising
  on account of fluctuations in the rate of. exchange in
  respect of loans taken for revenue purposes could be
  allowed as deduction under Section 37(1) of the Income
  Tax, Act, 1961 in the year of fluctuatioh in the rate of F
  exchange or whether the same is allowable only in the
  year of repayment of such loans and (ii) Whether the
  assessee is entitled to adjust the actual cost of imported
  capital assets acquired in foreign currency on account
  of fluctuation in the rate of exchange at each balance- G
 .sheet date, pending actual payment of the varied liability.

      Allowing the appeals, the Court

     HELD: 1.1. The factors to be taken into account in
  order to find out if an expenditure on account of             H
    390      SUPREME COURT REPORTS           [2010] 3. S.C.R:


A fluctuation in the foreign curren.cy rates, when the
  Assessee is following mercantile system of accounting,
  is deductible, are: (i) whether the system of accounting
  followed by the assessee is the mercantile system, which
  brings in the debits of the amount of expenditure for
B which a legal liability has been incurred even before it is
  actually disbursed and credits, what is due, immediately
  it becomes due even before it is actually received; (ii)"
  whether the same system is followed by the. assessee ·
  from the very beginning and if there was a change in the
c system, whether the change was bonafide; (iii) whether
  the assessee has given the same treatment to losses
  claimed to have accrued and to the gains that may accrue
  to it; (iv) whether the assessee has been consistent and
  definite in making entries in the account books in respect.
  of losses and gains; (v) whether the method adopted by
0
  the assessee for making entries in the books both . in
  respect of losses and gains is as per nationally accepted
  accounting standards and (vi) whether the system ·
  adopted by the assessee is fair and reasonable or is
E adopted only with a view to reducing the incidence of
  taxation. [Para 10] [397-G-H; 398-A-F]

       1.2. In the present case, the assessee followed
  mercantile system of accounting. Applying the aforesaid
  factors on the facts of the case, it is clear that the loss
F claimed by the assessee on account of fluctuation in the
  rate of foreign exchange as on the date of balance-sheet
  is allowable as expenditure under Section 37(1) of the
  Act, notwithstanding that the liability had not been
  discharged in the year in which the fluctuation in the rate
G of foreign exchange occurred. [Paras 10] [398·-F-H]

         Commissioner of Income- Tax v. Woodward Governor
    India P. Ltd. 2009 (312) l.T.R. 254 (SC), relied on. ·

          Oil & Natural Gas Commission & Anr. v. Collector of
H
OIL AND NATURAL GAS CORP. LTD. M. D. v. COMMNR. 391
           OF INCOME TAX, DEHRADUN

Central Excise (1992) Supp (2) SCC 432 and Mahanagar          A
Telephone Nigam Ltd. v. Chairman, ·central Board, Direct
Taxes & Anr. 2004 (267) l.T.R. 647 (SC), referred to.

     2.1. Section 43A of the Income Tax Act, 1961 was
amended by the Finance Act, 2002 w.e.f. 1st April, 2003.
                                                              B
Under the unamended Section 43A, "actual payment"
was not a condition precedent ,for making necessary
adjustment in the carrying cost of the fixed asset acquired
in foreign currency but under the amended Section 43A,
with effect from 1st April, 2003, such payment of the
decreased/enhanced liability on account of fluctuation in     C
foreign exchange rate has been made a condition
precedent for making adjustment in the carrying amount
of the fix.ed asset. [Para 12] [399-G-H; 400-A-C]

     2.2. AH the assessment years in question being prior     D
to the amendment in Section 43A of the Act with effect
from 1st April, 2003, the assessee would be entitled to
adjust the actual cost of the imported capital assets,
acquired in foreign currency, on account of fluctuation
in the rate of exchange at each of the relevant balance-      E
sheet dates pending actual payment of the varied liability.
[Para 13] [400-C-E]

     Commissioner of Income- Tax v. Woodward Governor
India P. Ltd. 2009 (312) l.T.R. 254 (SC), relied on.
                                                              F
                    Case Law Reference:
    2009 (312) l.T.R. 254 (SC)   relied on   Para 6
    (1992) Supp (2) SCC 432      referred to Para 6
                                                              G
    2004 (267) l.T.R. 647 (SC)   referred to Para 6

    CIVIL APPELLATE JURISDICTION : Civil Appeal No.
7223 of 2008.

    From the Judgment & Order dated 29.3.2007 of the High     H
    392           SUPREME COURT REPORTS                [2010] 3 S.C.R.


A   Court of Uttarakhand at Nainital in Income Tax Appeal No. 50
    of 2005.

                                    WITH

    C.A. Nos. 7224, 7225, 7228, 7229 and 7231 of 2008.
B
          S. Ganesh, Ruchi Gaur Narula, Shweta Mishra, S.R. Setia
    for the Appellant.

       B. Bhattacharya ASG, D.K. Singh, H.R. Rao, Mohd.
c   Manan, B.V. Balaram Das for the Respondent.

          The Judgment of the Court was delivered by

        D.K. JAIN, J. 1. In these appeals, essentially the following
    two questions arise for our consideration:-
D
           (i)      Whether on the facts and circumstances of the
                    case, the additional liability arising on account of
                    fluctuations in the rate of exchange in respect of
                    loans taken for revenue purposes could be allowed
E                   as deduction under Section 37(1) of the Income
                    Tax, Act, 1961 (for short "the Act") in the year of
                    fluctuation in the rate of exchange or whether the
                    same is allowable only in the year of repayment of
                  . such loans?
F
           (ii)    Whether the Assessee is entitled to adjust the
                   actual cost of imported capital assets acquired in
                   foreign currency on account of fluctuation in the rate
                   of exchange at each balance-sheet date, pending
                   actual payment of the varied liability? (only in C.A.
G                  No.7228/2008 - Assessment Year 1991-92)

         2. As, in our opinion, both the afore-noted issues are no
    more res integra, we deem it unnecessary to state the facts in
    detail and with a view to appreciate the controversy, a brief
H
   OIL AND NATURAL GAS CORP. LTD. M. .D. v. COMMNR 393
        OF INCOME TAX, DEHRADUN [D.K. JAIN.. J.]
   reference to the foundational facts in respect of assessment A
   year 1991-92 would suffice. These are:

              The appellant, hereinbefore referred to as "the Assessee", .
     . is a public sector undertak!ng, substantially owned by the .
        Government of India. It is engaged io capital intensi_ve
                                                                              8
     · 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 andJor payment to non-resident contractors in foreign
      ·currency for various sel'Vices renc:lered. The Assessee had
      . 111ade three types of foreign exchange borrowings .:.....,. (i) in C
        re\lent.:ie account; (ii) in capital. accouritand (iii) for general ·
· .·. purposes, partly utilised in. revenue account and partly in capital
 . . account. As per terms and conditions of foreign exchange
       bbrrowings,:some of the loans became re-payable in the year
        under·cons.idetatioh but date of repayment of some Joans fell D
        after the end offhe· relevant accounting year, The Assessee
        revalued in Indian currency all its foreign exchange loans in ·
        reven.ue account, capital account as also in its general
        purposes account, outstanding as on 31st March, 1991 and .
        claimed the difference between their respective amounts in E
        lndi.an currency as on 31st March, 1990 and on 31st March,
        1991 as revenue loss under Section 37(1) of the Act in respect
       of loans used in· revenue· account,•· and also. tOok into
       cqnsideration the s_imilar difference in foreign exchange on
     ·-capital account loans as an increased liability urider ·Section F
 .· · 43A of the Act for the purposes of depreciation. The foreign
       exchange loss incurred by the Assessee in the revenue acrour:it
       on account of repayment of these loans made in the year u.nder
       consideration· was .allowed by the Assessing Officer as a
       de~uction under Section 37(1} of the 'Ad, and he also took into G.
       consideration an increased liability of foreign exchange lol!Pls
      taken. in capital account and repaid in the accounting year, for
      tile purposes of ~epreciation, under Section 43A of tti~_Acf;frife,.
       however, did not allow.to the Assessee its claim for foreign
    · exchange loss claimed· on such foreign currency loans both ·in H
    394 .   SUPREME COURT REPORTS                 [2010] 3 S.C.R.


A   revenue account and in capital account which were outstanding
    on the last day of the accounting year under consideration and
    were as per terms of borrowings repayable after the end of the
    relevant accounting year. Similar treatment was given to the
    foreign exchange loans taken for general purposes, used partly
B   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 consideration both in the revenue
    account and capital account as also on loans used partly in
C   revenue account and partly in capital account, made on the
    ground that it had followed mercantile system of accounting in
    this regard, was disallowed by the Assessing Officer.
    According to the Assessing Officer, such a loss could be
    allowed to the Assessee on discharge of liability at the time of
    actual repayment of these loans.
0
       3. Aggrieved, the Assessee preferred appeals before the
  Commissioner of Income Tax (Appeals). Insofar as Assessee's
  claim for foreign exchange loss in revenue account was
  concerned, the Commissioner (Appeals) affirmed the view
E taken by the Assessing Officer on the ground that it was a
  notional liability and the same had not crystallised or accrued
  in the relevant assessment year. However, as regards the
  adjustment for increased liability made by the Assessee for the
  purposes of Section 43A of the Act in respect of foreign
F exchange loans in capital account, which were outstanding as
  on 31st March, 1991, the Commissioner accepted the stand
  of the Assessee and directed the Assessing Officer to allow
  the benefit of such increased liability for computation of
  depreciation allowance on plant and machinery purchased out
G of such foreign exchange loans for the assessment year under
  consideration.

        4. Being dissatisfied, both the Assessee as well as the
    Revenue carried the matter in further appeals to the Income Tax
    Appellate Tribunal (for short "the Tribunal"). The Tribunal ·
H
OIL AND NATURAL GAS CORP. LTD. M. D. v. COMMNR. 395
     OF INCOME TAX, DEl-;4RADUN [D.K. JAIN, J.]

observed that the method of accounting adopted by the                A
Assess~e right from the assessment year 1982-83 is
mercantile system; it has been consistently claiming loss
suffered by it on account of fluctuation in foreign exchange rates
on accrual basis; in respect of assessment years 1982-83 to
1986-87, the Assessee's claim on this account had been               B
allowed by the Assessing Officer himself; in respect of
assessment year 1997-98, the Assessee had shown a gain of
Rs.293.37 crores on account of fluctuation in foreign exchange
because the Indian Rupee had appreciated as compared to
the foreign currency and that the said amount.was taxed as           C
Assessee's income. Taking all these factors into consideration,
the Tribunal held that the loss claimed by the Assessee on
revenue account was allowable under Section 37(1) of the Act.
The appeal preferred by the Revenue on the question whether
the Assessee was entitled to adjust the actual cost of imported      D
assets acquired iR foreign currency on account of fluctuation in
the rate of exchange, in terms of Section 43A of the Act, was
also dismissed.

     5. The Revenue tsok the matter in further appeal to the High E
 Court. By a common judgment pertaining to the assessment
 years 1991-92 to 1994-95 and 1997-98, the High Court has
 reversed the decision of the Tribunal on both the issues.
Terming the order of the Tribunal as perverse, having been
passed without any material on record and against the statutory
provisions, the High Court has held that the foreign' exchange F
loss claimed by the Assessee being only a contingent and
notional liability, it was not allowable as deduction under Section
37(1) of the Act. Insofar as the applicability of Section 43A of
the Act was concerned, the High Court observed that the said
provision is confined only to those liabilities which have become · G
due as per the terms and conditions of written agreement
between the Assessee and the foreign creditors bJ.Jt since in
the present case, no such agreement was made available by
the Assessee at any stage of fhe proceedings, the claim of the
Assessee was not justified. According ,~o the High Court, the        H-
                                                             ...



    396        SUPREME COURT REPORTS                 (2010] 3 S.C.R.


A . variation in foreign exchange was neither quantified, nor it had
    become due or repaid and, therefore, deductions on that
    account had been allowed by the Tribunal without application
  . of mind and were, therefore, illegal. Being aggrieved by the
    said decision, the Assessee is before us in these appeals.
B
         6. Mr. S. Ganesh, learned senior counsel appearing on
    behalf of the Assessee, submitted that in view of the decision
    of this Court in Commissioner of Income-Tax vs. Woodward
    Govemor India P. Ltd., 1 the decision of the High Court cannot
    be sustained. Learned counsel also argued that in view of the
C fact that the Committee on disputes had expressly refused
    permission to the Revenue to pursue appeals before the High
   .Court, in the light of the decisions of this Court in Oil & Natural
  . Gas Commission & Anr. vs. Collector of Central Excise2 and
   Mahanagar Telephone Nigam Ltd. vs. Chairman, Central
D Board, Direct Taxes & Anr., 3 the High Court should not have
   entertained the appeals preferred by the Revenue.

       7. Mr. B. Bhattacharya, learned Additional Solicitor
  General, appearing on behalf of the Revenue, on the other hand,
E while candidly admitting that both the issues raised in the
  present appeals, have been decided by this Court in
  Woodward's case (supra), submitted that in view of the finding
  by the High Court that no agreement between the Assessee
  and the foreign creditors had been placed on record, the High
F Court was correct in law in allowing Revenue's appeals.

      8. At the outset, we may note that although in. view of the
  orders passed by the Committee on disputes, advising the
  Revenue not to file appeals against Tribunal's orders, we find
  some substance in the objection of learned counsel for the
G Assessee about the maintainability of Revenue's appeals
  before the High Court but as we have heard learned counsel

    1.   2009 (312) l.T.R 254 (SC).
    2.   (1992) Supp (2) sec 432.
H   3.   2004 (267) l.T.R. 647 (SC).
  OIL AND NATURAL GAS CORP. LTD. M. D. v. COMMNR. 397
       OF INCOME TAX, DEHRADUN [D.K. JAIN, J.]

 for the parties on merits of the appeals, at this stage, we do         A
 not propose to go into this question. We also reject at the
 threshold the submission of learned counsel for the Revenue
 that the claim of the Assessee qua capital account deserved
 to be disallowed because no agreement between the
 Assessee and the foreign creditors, as observed by the High            B
 Court was placed on record, because no such objection was
 raised by the Revenue at any stage of the assessment
 proceedings nor had the Assessing Officer rejected the claim
 of the Assessee on that ground.
                                                                        c
       9. Thus, the questions surviving for determinatio_n are:- (i)
  that when the Assessee maintained their accounts on
  mereantile system of accounting and there was no finding by
  the Assessing Officer on the correctness or completeness of
  the account and that the Assessee had complied with the
                                                                        0
. accounting standards, laid down by the Central Government,
  can the "loss" suffered by it on account of fluctuation in the rate
  of foreign exchange as on the date of balance-sheet be
  allowed as expenditure under Section 37(1) of the Act
  notwithstanding the fact that the liability had not been actually
  discharged in the year in which the fluctuation in the rate of        E
  foreign exchange had occurred and (ii) whether on account of
  fluctuation in the rate of exchange at t~e end of the previous
  year, the Assessee is entitled to adjust the actual cost of
  imported assets acquired in foreign currency?
                                                                        F
       10. Having carefully perused the decision of this Court in
  Woodward's case (supra), we are of the opinion that both the
 issues stand concluded by the said decision. Dealing with the
 said issues extensively, speaking for the Bench, S.H. Kapadia,
 J. summarised the following factors which should be taken into         G
 account in order to find out if an expenditure on account of
 fluctuation in the foreign currency rates, when the Assessee is
 following mercantile system of accounting, is deductible:
                 I
       (iii)   whether the system of accounting followed by the
                                                                        H
    '



        398         SUPREME COURT REPORTS               [2010] 3 S.C.R.


A                     assessee is the mercantile system, which brings in
                      the debits of the amount of expenditure for which a
                      legal liability has been incurred even before it is
                      actually disbursed and credits, what is due,
                      immediately it becomes due even before it is
B                     actually received; ·

              (iv)    whether the same system is followed by the
                      assessee from the very beginning and if there was
                      a change in the system, whether the change was
c                     bona fide;

              (v)     whether the assessee has given the same
                      treatment to losses claimed to have accrued and
                      to the gains that may accrue to it;

D             (vi)    whether the assessee has been consistent and
                      definite in making entries in the account books in
                      respect of losses and gains;

              (vii)   whether the method adopted by the assessee for
                      making entries in the books both in respect of
E                     losses and gains is as per nationally accepted
                      accounting standards;

              (viii) whether the system adopted by the assessee is fair
                     and reasonable or is adopted only with a view to
F                    reducing the incidence of taxation.

  Applying these factors on the facts of that case, it was held that
  the "loss" suffered by the Assessee, maintaining accounts
  regularly on mercantile system and following accounting
G standards prescribed by the Institute of Chartered Accountants
  of India (ICAI), on account of fluctuation in the rate of foreign
  exchange as on the date of balance-sheet was an item of
  expenditure under Section 37(1) of the Act, notwithstanding that
  the liability had not been discharged in the year in which the
H fluctuation in the rate of foreign exchange occurred.
OIL AND NATURAL GAS CORP. LTD. M. D. v. COMMNR. 399
     OF INCOME TAX, DEHRADUN [D.K. JAIN, J.]

     11 .. We are of the opinion that the ratio of the said decision,   A
with which we are in respectful agreement, squarely applies to
the facts at hand and, therefore, the loss claimed by the
Assessee on account of fluctuation in the rate of foreign
exchange as on the date of balance-sheet is allowable as
expenditure under Section 37(1) of the Act.                             8

      12. On the question whether an Assessee is entitled to
adjust the actual cost of imported assets acquired in foreign
currency on account of fluctuation in the rate of exchange at
each balance-sheet date, pending actual payment of the varied           C
liability with reference to unamended Section 43A of the Act,
in Woodward's case (supra), the Court observed thus:

    "... what triggers the adjustment in the actual cost of the
    assets, in terms of the unamended section 43A of the 1961
    Act is the change in the rate of exchange subsequent to             D
    the acquisition of asset in foreign currency. The section
    mandates that at any time there is change in the rate of
    exchange, the same may be given effect to by way of
    adjustment of the carrying cost of the fixed assets acquired
    in foreign currency. But for section 43A which corresponds          E
    to paragraph 10 of AS-II such adjustment in the carrying
    amount of the fixed assets was not possible, particularly
    in the light of section 43(1). The unamended section 43A
    nowhere required as condition precedent for making
    necessary adjustment in the carrying amount of the fixed            F
    asset that there should be actual payment of the increased/
    decreased liability as a consequence of the exchange
    variation. The words used in the unamended section 43A
    were "for making payment" and not "on payment" which is
    now brought in by amendment to section 43A, vide the                G
    Finance Act, 2002."

    Opining that the amendment of Section 43A of the Act by
the Finance Act, 2002 with effect from 1st April, 2003 is
amendatory and not clarificatory and would thus, apply
                                                                        H
                                                                I



    400       SUPREME COURT REPORTS                 [2010] 3 .S.C.R.


A prospectively, the Court explained that under the unamended
  Section 43A, adjustment to the actual cost takes place on the
  happening of change in the rate of exchange, whereas under
  t:-;e amendeq Section43A, the adjustment in the actual cost is
  made oh cash basis. In other words, under the unamended
B Section 43A, "actual payment" was not a condition precedent
  for mc;iking necessary adjustment in the carrying cost of the fixed
  asset acquired in foreign currency but under the amended
  S.ection 43A, with effect from 1st April, 2003, such payment of
  the decreased/enhanced liability on account of fluctuation in
  foreign exchange rate has been made a condition precedent
C for making adj1,1stment in the carrying amount of the fixed asset.

         13. We are of the opinion that the decision of this Court in
    Woodward's case (supra) settles the second issue as well. We
    respectfully concur with the same and hold that all the
D assessment years in question being prior to the amendment
 · in Section 43A of the Act with effect from 1st April, 2003 the
   Assessee would be entitled to adjust the actual cost of the
    imported capital assets, acquired in foreign currency, on
    account of fluctuation in the rate of exchange ateach of the
E relevant balance-sheet dates pending actual payment of the
  , varied liability.

          14. Resultantly, all the appeals are allowed; the impugned
   orders are set aside and both the questions formulated in para
   1 (supra) are answered in favour of the Assessee, leaving the
   parties to bear their own costs.

   B.B.B.                                        Appeals allowed.




                                                            I   '