Section 43AA — the law in short
What the courts have decided on section 43AA, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.
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IL&FS Tamilnadu Power Company v DCIT — a forward contract gain that cannot be adjusted on capital account must be taxed as revenue
ITATHelps departmentNo later treatment found
My client hedged a loan given to its foreign subsidiary and made a gain on the forward contract. It says the gain is capital. Will that hold?
It did not hold here. The Chennai Tribunal upheld the Commissioner (Appeals) and taxed a forward exchange contract gain of Rs.19,90,79,300 as revenue, reasoning that where the exchange fluctuation gain or loss cannot be adjusted on capital account — as it can be under s.43A where a capital asset is acquired from outside India — it must be treated as revenue and offered to tax, because there cannot be a situation in which the fluctuation gain or loss is adjusted neither on capital account nor on revenue account. The Tribunal reached that conclusion after considering, among other things, the ICDS notified on 29 September 2016 and operative from AY 2017-18.
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Statutory position — the Finance Act 2018 answer to Chamber of Tax Consultants: s.36(1)(xviii), s.40A(13), s.43AA, s.43CB, s.145A and s.145B
CBDT Circulars & InstructionsCuts both ways
The Delhi High Court struck down parts of the ICDS in 2017. Can I still rely on that for an AY 2017-18 assessment?
Only in part, and for most of what was struck down the answer is no. The Finance Act 2018 inserted s.36(1)(xviii), s.40A(13), s.43AA and s.43CB, and substituted new sections 145A and 145B, in every case with the words "shall be deemed to have been inserted" or "deemed to have been substituted" with effect from the 1st day of April 2017 — that is, retrospectively from AY 2017-18, the very first year in which the ICDS operated. What Parliament could not do by executive notification it did by statute, so the substance of the struck-down ICDS provisions now stands in the Act itself and the 2017 judgment no longer answers the point.
Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.
