CASE OF ROLLOVER PREMIUM CHARGE

The Supreme Court set aside the judgement of the Gujarat High Court in the case, Asst CIT vs. Elecon Engineering Co. Ltd., involving the nature of roll-over premium charge incurred by the company as also the scope and applicability of Section 43A of the Income Tax Act. The company procured foreign currency loan for expansion of its business. Repayment was in installments. It took forward contract with a bank for the delivery of foreign currency on stipulated dates. The balance value of the contract, after deducting the amount withdrawn towards repayment, was rolled over for a further period up to the date of the next installment. The authorities disallowed the roll over premium charges paid by the assessee in respect of foreign exchange forward contracts to the bank on the ground that the said charges were incurred in connection with the purchase of a capital asset, hence it was not admissible for deduction under section 36(1)(iii). The high court took the view that the roll
over premium charges were in the nature of interest or committal charges, hence, they were allowable. The Supreme Court rejected the view.