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Wipro Finance Ltd. vs. The Commissioner of Income Tax, Bangalore

Civil Appeal · 2022 INSC 417Decided 12 Apr 2022
Civil Appeal No. 6677 of 2008
A.M. Khanwilkar · Abhay S. Oka · C.T. Ravikumar

Background

Wipro Finance Ltd. had borrowed foreign currency (5 million pounds sterling) from a UK-based development corporation to finance its leasing and hire-purchase business for Indian companies. When repaying the loan, currency exchange rate movements caused the company a large loss, which it claimed as a tax-deductible business expense for assessment year 1997-98. The Income Tax Appellate Tribunal (ITAT) accepted the claim as revenue expenditure, but the Karnataka High Court reversed this, holding the ITAT hadn't given sufficient reasons. Wipro Finance appealed to the Supreme Court.

Decision Breakdown

The Supreme Court held that since the borrowed money was used purely to fund the company's ordinary financing business (not to acquire any capital asset from outside India), the exchange-rate loss on repaying that loan was a revenue expense, not a capital expense, and therefore fully deductible under Section 37 of the Income Tax Act. The Court relied on its own earlier rulings (India Cements and Empire Jute) that an expense is "revenue" in nature if it merely facilitates a business's ordinary trading operations without creating any lasting capital asset. It also rejected the tax department's argument that Wipro couldn't raise this claim for the first time before the ITAT, since the ITAT has broad power under Section 254 to entertain such claims, and the department's own representative had not objected. The High Court's judgment was set aside and the ITAT's order restored.

Lesson Learnt

Losses arising from foreign-currency fluctuation on a loan used purely to run day-to-day business operations (as opposed to buying a capital asset) are treated as ordinary revenue expenditure and can be claimed as a full tax deduction.

Official source (sci.gov.in)View Judgment (PDF)

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