1. ' SALEEM AKHTAR, J.-- The applicants are engaged in manufacturing medicines and drugs at Karachi. In November, 1971 with the permission of the State Bank of Pakistan, the applicants obtained a loan of US $4,50,000 from their associates. The loan was to be repatriated by 30th November, 1972 but the forward exchange cover granted by the State Bank of Pakistan was up to 9-5-1972. As the applicant could not pay the loan within six months the State Bank of pakistan refused to extend the cover period which actually expired on 9-5-1972. On 12-5-1972 the Pak. Rupee was devalued. When the applicants made repayment after the devaluation they had to incur extra expenditure of Rs,28,57,358 for repatriating the same amount of loan in Dollar which they had borrowed. The applicants therefore, claimed this amount as an allowance under section 10 subsection (2)(xvi) of the Income-tax Act. The applicants claimed that the loan was utilised for the stock in trade, and therefore, it was spent for business and any extra amount paid for its repatriation was exclusive for the purpose of business. The Income-tax Officer did not accept this contention and held that the amount which applicants had to pay in excess of what was received in the terms of rupees was a capital expenditure. The appeal filed before the Appellate Assistant Commissioner was dismissed. The applicants filed second appeal before the Tribunal which by a majority of two to one dismissed the appeal.However, another learned Member dissented from this opinion and held that the expenditure incurred in connection with the repayment of the loan was an expense allowable under section 10(2)(xvi) of the Act. The applicants then filed an application under section 66(1) of the Act and the following question has been referred:- "Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the excess payment while representing the loan was due to devaluation of Pakistan Rupee is not an admissible deduction under the Income-tax Act?
2. ' Mr. Abdul Wadood, the learned counsel for the applicants has contended that the loan was taken for the purpose of business, and therefore, whatever may have been the extra expenditure for remittance of that loan, it was spent wholly and exclusively for business purposes.
3. ' Mr. Shaikh Haider,the learned counsel for the Department contended that as the facts and findings have not been disputed and since it has been held that it was not a business expense no further inquiry can be made into it and the rejection of the applicants claim was proper. It is correct that the facts and circumstances have not been disputed but the conclusion drawn from such facts has been challenged in question referred to us. Where any party challenges the conclusion drawn from a set of facts and circumstances, it is a question of law. In the statement of facts the learned Tribunal has observed that part of the loan was spent for purchasing raw material for manufacturing medicines whereas the applicants have claimed that the loan was utilised for buying stock in trade. The Assessing Officer has quoted the explanation of the applicants in which they had stated that the loan was obtained for the purposes of working capital and was actually utilised as working capital in importing raw material and meeting day to day expenditure for carrying on business. It was further stated that the loan w not utilised for purchasing any capital asset or meeting any expenditure of ca nature. He, however, did not give any finding about it, but held that the cl a capital loss as the loan was the capital liability of the assessee. Similar observation of the 1st Appellate Authority. The learned Tribunal in its exh judgment held that the amount was received as a loan, it remained as a lo, did not change its character. It was part of company's trade register at. Applicants paid back their loan which was not acquired as a stock in trad, therefore, the excess spent on account of repayment of the same numb. 01 dollars taken as a loan was an item of expenditure not debitable to revenue but to capital account.
4. ' There is no dispute that the amount was borrowed by the applicants as a loan for the purpose of utilising it in their business. The applicant's claim that they have purchased raw material for manufacturing medicine and drugs does not seem to be disputed. Therefore, this amount of loan was not kept by the applicants in tact or converted into a capital asset, but it was utilised for B-41 purchasing raw material. In this process the applicants parted with the money, purchased the raw material manufactured the medicine and put it to sale. This entire process from taking of loan to manufacture and sale of medicine will clearly illustrate that the amount was utilised in business.
5. The learned counsel f the applicants has referred to Oil India Co. Ltd. v. Commissioner of Income Central Calcutta (1982) 137 I T R 156. In this case the question arose repayment of Rs,40,60,500 and the liability to pay an extra amount of Rs,52, tithe due to devaluation was business expenditure.
6. There was no dispute the additional liability was in the nature of revenue expenditure and borrowing (ie been made for meeting the assessee's revenue expenditure which directly related to business. It was held that the money was borrowed for carrying on business and therefore, the additional liability due to devaluation would be a loss in connection with the loan arising out of the business. In the present case also the Tribunal has held that part of the loan was spent for purchasing the raw-material C for manufacturing medicines. For the part of the loan amount nothing has been stated to controvert the statement of the applicants. The liability to pay extra amount due to devaluation was therefore, spent for business purposes.
7. ' The learned counsel for the applicants also referred to Commissioner of Income-tax v.
8. International (Pvt.) (1982) 137 I T R 184. In this case the assessee company incurred an additional liability to the supplier of U.K. As a result of devaluation of Indian Rupee and it claimed the same as a deduction. It was found by the Tribunal that the plant and machinery purchased by the assessee from the non-resident was part of trade of the assessee and as a result of devaluation the liability to pay had increased therefore, the additional liability arose directly from and in the usual course of business of the assessee.
9. ' Similar question came up for consideration in Civil Reference No,25 of 1979 General Tyre and Rubber Co. v. Commissioner of Income-tax in which this Bench after considering various authorities came to the same conclusion as stated above. In this case under an agreement the assessee, a company resident in Pakistan was to pay technical fee in US dollar and due to devaluation extra amount was incurred for repatriating the said fee. It was held that the extra payment was made for business purpose, and therefore, the loss suffered due to devaluation of Pakistan currency was a trading loss and an expense allowable under section 10(2)(xvi). In the present case also the loss has been suffered by the applicants in respect of the loan which was taken by the applicants and utilised in purchasing raw material for manufacturing medicines. They are therefore, entitled to the benefits under section 10(2)(xvi). For the aforestated reasons we reply` the question in the negative.