1Notwithstanding anything contained in any other provision of this Act, where an assessee has acquired any asset in any previous year from a country outside India for the purposes of his business or profession and, in consequence of a change in the rate of exchange during any previous year after the acquisition of such asset, there is an increase or reduction in the liability of the assessee as expressed in Indian currency (as compared to the liability existing at the time of acquisition of the asset) at the time of making payment-
(a) towards the whole or a part of the cost of the asset; or
(b) towards repayment of the whole or a part of the moneys borrowed by him
from any person, directly or indirectly, in any foreign currency specifically
for the purpose of acquiring the asset along with interest, if any,
the amount by which the liability as aforesaid is so increased or reduced during
such previous year and which is taken into account at the time of making the
payment, irrespective of the method of accounting adopted by the assessee, shall
be added to, or, as the case may be, deducted from-
(i) the actual cost of the asset as defined in clause (1) of section 43; or
(ii) the amount of expenditure of a capital nature referred to in clause (iv) of sub-section (1) of section 35; or
(iii) the amount of expenditure of a capital nature referred to in section 35A; or
(iv) the amount of expenditure of a capital nature referred to in clause (ix) of sub-section (1) of section 36; or
(v) the cost of acquisition of a capital asset (not being a capital asset referred to in section 50) for the purposes of section 48,
and the amount arrived at after such addition or deduction shall be taken to be the actual cost of the asset or the amount of expenditure of a capital nature or, as the case may be, the cost of acquisition of the capital asset as aforesaid:
Provided that where an addition to or deduction from the actual cost or expenditure or cost of acquisition has been made under this section, as it stood immediately before its substitution by the Finance Act, 2002, on account of an increase or reduction in the liability as aforesaid, the amount to be added to, or, as the case may be, deducted under this section from, the actual cost or expenditure or cost of acquisition at the time of making the payment shall be so adjusted that the total amount added to, or, as the case may be, deducted from, the actual cost or expenditure or cost of acquisition, is equal to the increase or reduction in the aforesaid liability taken into account at the time of making payment.
Explanation 1.-In this section, unless the context otherwise requires,-
(a) "rate of exchange" means the rate of exchange determined or recognised by the Central Government for the conversion of Indian currency into foreign currency or foreign currency into Indian currency;
(b) "foreign currency" and "Indian currency" have the meanings respectively assigned to them in section 2 of the Foreign Exchange Management Act, 1999 (42 of 1999).
Explanation 2.-Where the whole or any part of the liability aforesaid is met, not by the assessee, but, directly or indirectly, by any other person or authority, the liability so met shall not be taken into account for the purposes of this section.
Explanation 3.-Where the assessee has entered into a contract with an
authorised dealer as defined in section 2 of the Foreign Exchange Management
Act, 1999 (42 of 1999), for providing him with a specified sum in a foreign
currency on or after a stipulated future date at the rate of exchange specified
in the contract to enable him to meet the whole or any part of the liability
aforesaid, the amount, if any, to be added to, or deducted from, the actual cost
of the asset or the amount of expenditure of a capital nature or, as the case
may be, the cost of acquisition of the capital asset under this section shall,
in respect of so much of the sum specified in the contract as is available for
discharging the liability aforesaid, be computed with reference to the rate of
exchange specified therein.
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1. Subs. by Act 20 of 2002, s. 21, for section 43A (w.e.f. 1-4-2003).
Section 40A Expenses or payments not deductible in certain circumstances
Section 41 Profits chargeable to tax
Section 43A Special provisions consequential to changes in rate of exchange of currency
Section 43AA Taxation of foreign exchange fluctuation
Section 43B Certain deductions to be only on actual payment
Section 43C Special provision for computation of cost of acquisition of certain assets
Section 43CB Computation of income from construction and service contracts