Mortgage deed expense for capital subsidy qualifies as deductible revenue expenditure

The High Court of Madhya Pradesh held that the expenditure incurred on executing a mortgage deed for obtaining capital subsidy by a limited company manufacturing transformers was revenue expenditure eligible for deduction. The court referred to relevant precedents and emphasized that securing a loan is revenue expenditure regardless of the loan's purpose. The Tribunal's decision to allow the deduction was upheld, ruling in favor of the assessee and directing each party to bear their own costs.

---

---

Issues involved:
The issue involves whether the assessee was entitled to deduction of expenditure incurred on execution of a mortgage deed for obtaining capital subsidy.

Judgment Details:

The High Court of Madhya Pradesh, in a reference u/s 256(1) of the Income-tax Act 1961, addressed the question of law regarding the deduction of expenditure of Rs. 22,561 incurred on executing a mortgage deed for obtaining capital subsidy. The assessee, a limited company manufacturing transformers, had applied for a capital subsidy and a loan from the Madhya Pradesh Financial Corporation. The assessee incurred Rs. 22,561 for the deed of mortgage to secure the loan. The Income-tax Officer disallowed this amount as a deduction, which was upheld by the Commissioner of Income-tax (Appeals) but overturned by the Tribunal. The Tribunal found that the expenses were revenue expenditure, allowing the deduction.

The court considered precedents such as Upper Doab Sugar Mills Ltd. v. CIT, Shree Digvijay Cement Co. Ltd. v. CIT, and Brooke Bond India Ltd. v. CIT, which dealt with expenditure related to shares issuance, distinguishing them from the current case. Referring to India Cements Ltd. v. CIT, the court highlighted that a loan is a liability and expenditure to secure a loan is revenue expenditure, irrespective of the loan's purpose. The Tribunal's findings that the capital subsidy could be adjusted against the loan and had no specific purpose regulation led the court to agree that the expenses for the mortgage deed were revenue expenditure, entitling the assessee to the deduction.

In conclusion, the court answered the question in the affirmative, ruling in favor of the assessee and against the Revenue. Each party was directed to bear their own costs in this reference.

---