2008 (2) TMI 108 - HC - Income Tax

Court affirms revenue treatment of debenture expenses, standby assets eligible for depreciation

The Court affirmed the revenue nature of expenses related to debentures and fixed deposits, following precedents such as India Cements Limited v. ... Tribunal has recorded a finding that the expenses relating to obtaining fixed deposits are closely linked with the business requirement of the assessee, such expenses are allowable expenses - Tribunal was right in holding the same as revenue expenditure – expenditure incurred for issue of debentures are revenue expenditure, not capital expenditure – Held that even in respect of standby assets, which are kept ready for user, during the relevant assessment year are entitled to depreciation Issues:1. Expenditure incurred on issue of debentures and collection of fixed deposits as revenue expenditure.2. Depreciation on standby machinery.Analysis:Issue 1: Expenditure on debentures and fixed depositsThe appeal challenged the disallowance of expenditure on debentures and fixed deposits as revenue expenditure. The Apex Court precedent in India Cements Limited v. Commissioner of Income-Tax established that such expenditure is considered revenue expenditure. The Tribunal upheld the Commissioner's decision based on this precedent. Additionally, the Division Bench in Commissioner of Income Tax v. Southern Petrochemical Industries Corporation Ltd. found that expenses related to obtaining fixed deposits are allowable as revenue expenditure when closely linked to the business requirements of the assessee. The Court referred to various cases, including C.I.T. v. Mahindra Ugine and Steel Co. Ltd., and C.I.T. v. Investment Trust of India Ltd., to support the allowance of such expenses as revenue in nature. Therefore, the Court affirmed the Tribunal's decision regarding the revenue nature of the expenses for obtaining fixed deposits.Issue 2: Depreciation on standby machineryRegarding the eligibility of standby assets for depreciation, the Division Bench in Commissioner of Income-Tax v. Southern Petrochemical Industries Corporation Limited held that machinery kept ready for business use, even if not actively utilized, is entitled to depreciation. The Court cited precedents such as Liquidators of Pursa Limited v. CIT, Commissioner of Income-Tax v. Viswanath Bhaskar Sathe, and Commissioner of Income-Tax v. Vayithri Plantations Limited to support this conclusion. The Court emphasized that 'forced idleness' of machinery does not disqualify the assessee from claiming depreciation. Therefore, the Court dismissed the appeal, affirming that standby assets are eligible for depreciation benefits.In conclusion, the Court upheld the Tribunal's decisions on both issues, affirming the revenue nature of expenses related to debentures and fixed deposits and confirming the eligibility of standby assets for depreciation benefits.