2003 (4) TMI 37 - HC - Income Tax

Tribunal ruling: Loan fees not revenue expenditure. Foreign tour expenses disallowed. Section 43B addition deleted.

The Tribunal held that various fees paid for loans and services were not allowable as revenue expenditure, following the principle that expenses for ... Expenses for obtaining the loan could not be treated as capital expenditure, because, their direct nexus was with acquiring the loan and not with acquiring of any asset - foreign tour expenses incurred by the managing director of the company was not incurred for any new project of the assessee but was in connection with some project – Thus, Tribunal erred in law in holding that the foreign tour expenses was not allowable revenue expenditure - Tribunal is right in deleting the addition made by the Income-tax Officer invoking the provisions of section 43B because first proviso to section 43B has to be treated as retrospective Issues Involved:1. Allowability of scrutiny fees paid to GIIC as revenue expenditure.2. Allowability of fees paid to Dixit Consultants for preparing a report for a loan as revenue expenditure.3. Allowability of fees paid to Parekh Jazal and Co. for a loan as revenue expenditure.4. Allowability of fees paid to Ambubhai Diwanji and Co., Solicitors for a loan as revenue expenditure.5. Allowability of foreign tour expenses incurred by the managing director as revenue expenditure.6. Depreciation claim on an electric generator as an energy-saving device.7. Deletion of addition made by the Income-tax Officer under section 43B of the Income-tax Act, 1961.Issue-wise Detailed Analysis:1. Allowability of Scrutiny Fees Paid to GIIC:The Tribunal held that the scrutiny fees of Rs. 45,000 paid to GIIC for obtaining a loan for the purchase of machinery and extension of building was not allowable as revenue expenditure. The Tribunal relied on the decision in CIT v. Vallabh Glass Works Ltd. [1982] 137 ITR 389, which stated that expenses incurred in procuring a loan for acquiring a capital asset cannot constitute revenue expenditure. The Supreme Court's decision in India Cements Ltd. v. CIT [1966] 60 ITR 52 was cited, which clarified that expenses for raising a loan should be treated as revenue expenditure. Therefore, the question was answered in the negative, in favor of the assessee.2. Allowability of Fees Paid to Dixit Consultants:The Tribunal held that the fees of Rs. 4,350 paid to Dixit Consultants for preparing a report in connection with a loan from GSFC/GIIC for manufacturing pumps and valves was not allowable as revenue expenditure. This decision was based on the same reasoning as the first issue, considering the expenditure as part of the cost of acquisition of a capital asset. The Supreme Court's ruling in India Cements Ltd. was applied, leading to the conclusion that such expenses are revenue expenditures. The question was answered in the negative, in favor of the assessee.3. Allowability of Fees Paid to Parekh Jazal and Co.:The Tribunal held that the amount of Rs. 10,000 paid to Parekh Jazal and Co. in connection with a loan from GIIC was not allowable as revenue expenditure. The Tribunal's decision followed the same rationale as the previous issues, treating the expenditure as capital in nature. The Supreme Court's decision in India Cements Ltd. was again referenced, confirming that expenses for raising a loan should be considered revenue expenditure. The question was answered in the negative, in favor of the assessee.4. Allowability of Fees Paid to Ambubhai Diwanji and Co., Solicitors:The Tribunal held that the amount of Rs. 14,800 paid to Ambubhai Diwanji and Co., Solicitors in connection with a loan from GIIC was not allowable as revenue expenditure. This decision was consistent with the reasoning applied to the previous issues, considering the expenditure as part of the cost of acquiring a capital asset. The Supreme Court's ruling in India Cements Ltd. was applied, leading to the conclusion that such expenses are revenue expenditures. The question was answered in the negative, in favor of the assessee.5. Allowability of Foreign Tour Expenses:The Tribunal held that the foreign tour expenses of Rs. 39,496 and Rs. 85,411 incurred by the managing director were not allowable as revenue expenditure. The Tribunal's decision was based on the ground that the expenses were for setting up a new line of production, which was not materialized, and no asset was created. However, the court found that the expenses were related to projects of other entities (Mohan Meakin and HDO) and not the assessee's new project. Thus, the Tribunal's finding was deemed illegal, and the question was answered in the negative, in favor of the assessee.6. Depreciation Claim on Electric Generator:Learned counsel for the assessee stated that the question regarding the electric generator, claimed at 100% depreciation as an energy-saving device, was not pressed. Therefore, the question remained unanswered.7. Deletion of Addition Under Section 43B:The Tribunal deleted the addition of Rs. 4,10,671 made by the Income-tax Officer under section 43B of the Income-tax Act, 1961. The Supreme Court's decision in Allied Motors (P.) Ltd. v. CIT [1997] 224 ITR 677, which held that the first proviso to section 43B is retrospective, was applied. Consequently, the question was answered in the affirmative, in favor of the assessee.Conclusion:The reference was disposed of with no order as to costs. The court ruled in favor of the assessee on all the contested issues, except for the question regarding the electric generator, which was not pressed.