Whether payment of interest for loan borrowed against Foreign Currency Non Resident Loan Account is revenue in nature and allowable as deduction u/s 43A?

Last updated: 01 September 2014

Court :
Delhi High Court

Brief :
The respondent assessee had issued15% Unsecured Redeemable Non-convertible Debentures carrying interest @15% per annum. In order to repay the debentures, the respondent-assessee borrowed loan against Foreign Currency Non Resident Loan Account [FCNR(B) Loan] at an advantageous lower rateof interest as compared to interest payable on the normal loanaccount. In order to hedge against foreign exchange fluctuations, the respondent-assessee had entered into forward contracts with banksin India. The respondent-assessee incurred loss of Rs. 49,98,072/-on account of foreign exchange fluctuation on account of FCNR(B)Loan. It was held that finding of CIT(A) is clear and categorical that the loan was notfor acquisition of an asset, payment made inforeign currency. Rs. 49,98,072/- was the actual expenditure incurred by the assessee as per the terms negotiatedto save and protect the assessee from foreign exchange fluctuation loss. Keeping in view the aforesaid aspects, it is clearthat the payment of Rs. 49,98,072/- would be of revenue nature i.e.virtually in nature of payment of interest for the loan taken havingregard to the nature and type of loan which was taken i.e. FCNR(B)Loan Account. It is part and parcel of payment towards debt servicing.

Citation :
Commissioner of Income Tax - Appellant – Versus – Climate System Pvt. Ltd. – Respondent