TaxTMI 
TaxTMI 
2005 (5) TMI 260
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....her than incurring huge cost in hotels. 2. That on the facts and circumstances of the case, the learned CIT(A) has erred in confirming the disallowance of the revenue expenditure of Rs. 67,06,33,245 incurred in connection with the swapping of foreign currency funds for augmenting the rupee funds required for the business of the assessee-company. The learned CIT(A) ought to have held that the said revenue expenditure was to be allowed in the year of incurrence of the liability. 3. That on the facts and circumstances of the case, the learned CIT(A) has erred in confirming the disallowance of Rs. 52,799 claimed on account of lease rent though attributable to the year under consideration. 4. That on the facts and circumstances of the case, the interest amounting to Rs. 16,66,200 and Rs. 80,25,445 charged under ss. 234B and 234C of the IT Act, 1961, would need revision." 3. The first ground is with regard to the expenditure incurred by the assessee for maintaining premises at various centres for providing lodging facilities to its employees on tour. The AO held that the expenditure was in the nature of guest-house expenses and not allowable under s. 37(3) o....
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....iture claimed pertained to future period and not to the period relevant to assessment year under consideration inasmuch as the impugned transaction was to safeguard against future currency fluctuations. The AO held that the expenditure did not cover the obligation of the previous year relevant to assessment year under consideration. The AO also held the same as ineligible for deduction as according to him, the expenditure was capital in nature. We find that the AO however, allowed the deduction with respect to the amount of Rs. 1,466.55 lakhs which had been charged by the assessee in its P&L ale during the year itself and has restricted the disallowance to the amount classified as deferred revenue expenditure amounting to Rs. 67,06,33,245. The assessee carried the matter in appeal before the CIT(A). 7. In appeal before the CIT(A), the contentions of the assessee were to the following effect: That the swapping activity was carried out by the assessee as a matter of routine to augment its rupee resources for meeting its business obligations. The assessee explained that it was in the business of financing and it kept the money market situation under consideration and was d....
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....in the year in which it is incurred. It was argued that the expenditure was definite and therefore, it was to be allowed as deduction in the impugned year itself although the currency transacted under the forward contract was to be received in the subsequent period. The rate at which the assessee was to get the currency was fixed and the same was done with the objective of safeguarding against the foreign currency fluctuations. The learned counsel relied upon the decisions of the Hon'ble apex Court in the cases of India Cements Ltd. vs. CIT (1966) 60 ITR 52 (SC) and also Empire Jute Co. Ltd. vs. CIT (1980) 17 CTR (SC) 113 : (1980) 124 ITR 1 (SC) in the course of the hearing. 10. On the other hand, the learned Departmental Representative, Shri B.N. Verma has defended the order of the first appellate authority. According to the learned Departmental Representative, the impugned expenditure has been correctly held by the CIT(A) to be allowed in the year to which it pertains. According to the learned Departmental Representative, the benefit under the impugned forward contract was spread over a period extending beyond the current assessment year and in support of his submissions, ....
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....tself. The amount of such claim was Rs. 1,466.65 lakhs. The balance of the claim of Rs. 67,06,33,245 was relating to contracts which were not concluded within the year under consideration. The same has been negated by AO on twin grounds. Firstly that the assessee had itself not debited in its P&L a/c but treated it as deferred revenue expenditure and secondly, that it was capital in nature. Insofar as the issue of nature of expenditure is concerned, CIT(A) has since held that the same is revenue in nature and the Revenue has not challenged the same before us in its cross appeal filed which shall be taken up by us in the later part of this order. Thus to that extent there can be said to be a common ground between the parties that as a result of order of the CIT(A), the nature of the impugned expenditure is liable to be treated as revenue. 13. However, the dispute which is intertwined with above and remaining unresolved is as to whether the expenditure of Rs. 67,06,33,245 is to be allowed deduction during the current assessment year itself or the same is to be considered while computing the income of the subsequent year. The stand of the Revenue is that the assessee purchased fore....
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...., liability of Rs. 2,000 was crystallized on that date itself. It is clearly discernible from the aforesaid illustration that such liability is definite and ascertainable having regard to the contractual obligation. In terms of the contract, assessee becomes aware of the rate at which. the foreign currency shall be purchased on the future date. The effect or the finality of the contract does not get postponed to the future date. It is well-settled that a liability arising on account of contractual obligation is to be allowed in entirety in the year in which the same is incurred having regard to the terms of the contract. Here, we may refer to the decision of the Hon'ble apex Court in the case of Calcutta Co. Ltd. vs. CIT (1959)37 ITR 1 (SC). In the said case, the circumstances were that the assessee had in the course of land developing business sold some plots of lands with a contractual obligation contained in the sale deed to the effect that it would carry out certain improvements necessitating certain expenditure. The assessee, in terms of the contract, received only a part of the price and the balance was to be received in instalments. In the accounts, which the assessee....
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....ver the entire period of debenture, as there was a continuous benefit to the business of the company over the entire period of debenture. In coming to this conclusion, the Hon'ble apex Court noted that the liability to pay the discount incurred in the year of issue of debenture was with a view to secure a benefit over a number of years or in other words it was found that there was a continuing benefit as the assessee was utilizing the funds raised by way of debentures continuously in its business till its repayment. In fact, the Hon'ble apex Court in the case of Madras Industrial Investment Corpn. Ltd. itself noticed that ordinarily revenue expenditure which is incurred wholly and exclusively for the purpose of business must be allowed in its entirety in the year in which it is incurred and it cannot be spread over a number of years except in situation where the facts may justify such spread over a period in the ensuing years. Firstly, in the instant case, as noted earlier, the impugned swapping cost has to be considered in the light of the contractual obligation on the part of the assessee and it cannot be said that there is any continuous benefit accruing to the assessee ....
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....n of lease premium paid by the assessee was thus not allowed. 19. After having heard both the parties and perusing the orders of the lower authorities, we find that the full facts concerning the matter have not been culled out and brought on record inasmuch as the terms of the agreement for taking the properties on lease, etc., are not available. Thus, it is not possible to test the efficacy of the claim of the assessee, although the learned counsel for the appellant submitted during the course of hearing that Tribunal in the case of the assessee itself for the asst. yr. 1986-87 in ITA No. 1308/Del/1994, dt. 27th Sept., 2001 has considered a similar issue. In this regard, we are of the view that the ratio of any decision has to be understood in the background of the facts of a particular case and unless the full facts concerning the matter are on record, it is not possible to apply the ratio of any decision. As noted by us earlier, since we do not have the benefit of the full facts viz., terms of lease agreement, etc., so as to appreciate the true nature of payment made by the assessee, in the circumstances, we are constrained to restore the matter to the file of the AO for pass....
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....was showing income from lease rent. The denial of depreciation by the AO was on the ground that the business of the assessee was some kind of hire-cum-purchase and finance business and the assets/plants and machinery leased out were the stock-in-trade. In coming to such conclusion, the relevant discussions made by the AO in the assessment order are as follows: "The transactions of leasing out of assets carried out by the assessee-corporation is broadly summarized as under: (i) First a lessee approaches the assessee-Corporation for taking a plant and machinery on lease. (ii) Assessee makes arrangement for purchase of such asset on behalf of the lessee. Simultaneously the assessee-Corporation enters into a lease agreement with the lessee whereby among other things it is stipulated that: (a) primary rent will be charged for first 60 months, and (b) secondary rent will be charged for next 36 months. Aggregate of primary rent charged in primary period of 60 months, is about 153.3 per cent of the cost of asset and the secondary rent charged for next 3 years is about 3.6 per cent of its cost. Thus, total recovery of 156.9 or about 157 per ce....
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....her stock-in-trade for a business of finance-cum-hire purchase. Assessee has preferred to call these as lease transactions due to obvious reasons." 25. Aggrieved by the order of the AO denying the claim of depreciation, the assessee carried the matter in appeal before the CIT(A). It was submitted before the CIT(A) that the AO had failed to appreciate the nature of assessee's business inasmuch as terms of the lease agreement were ignored by him. It was canvassed that the assessee fulfilled the conditions of s. 32 which requires that an asset should be owned by the assessee and the same should have been used for the purposes of business of the assessee during the year. After considering the pleas of the assessee, the CIT(A) allowed the claim of the assessee for depreciation placing reliance on the decision of the Hon'ble apex Court in the case of Shaan Finance (P) Ltd. The Revenue is presently in appeal before us against the aforesaid stand of the CIT(A). 26. Before us, the learned Departmental Representative Shri B.N. Verma, appearing on behalf of the Revenue has assailed the order of the CIT(A) by placing reliance on the reasoning adopted by the AO in the order of ass....
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.... specimen of lease agreement placed at pp. 35 to 70 of the paper book, the relevant cl. 2.4 of the art. II of the agreement reads as under: "2.4 Upon termination this agreement by afflux of time or otherwise, the lessee shall, at its own cost and expenses, forthwith deliver or cause to be delivered to the lessor the equipment, at such time and place as may be directed by the lessor, in good repair, order and conditions (subject to normal wear and tear)." A perusal of the aforesaid does lead to conclusion that during the currency of lease deed, the assessee alone remains the owner and at the end of the lease period, the assessee-lessor is within its right to receive back the leased assets. The CIT(A) has accordingly proceeded to allow the claim of the assessee for depreciation. However, we find that the AO in its order reached at the findings that the assessee was engaged merely in financing and that the assets leased by the assessee are never brought back to its premises at the expiry of the lease period and the entire arrangement is thus akin to sale of asset. If it is indeed so, the assessee cannot claim to be the owner and its depreciation claim cannot be entertained....
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....e CIT(A) has since allowed the claim of the assessee. The CIT(A) also held that the treatment by the assessee in the books of account cannot deviate from the true character of the expenditure. Accordingly, the Revenue is in appeal before us. 32. After having heard the rival parties, we do not find any substance in the present ground of the Revenue for the reason discussed hereinafter. The trite law is that under s. 36(1)(iii), an assessee is entitled to deduction of interest paid on moneys borrowed for the purpose of business irrespective of the utilization of the borrowings. The expression "purposes of business" found in s. 36(1)(iii), as relevant for the assessment year under consideration, is comprehensive to cover the utilization of such moneys- on both the aspects whether revenue or capital. The only limitation being that the expenditure must be incurred for the purposes of assessee. As long as the borrowing has been made for the purposes of business, then even if it is used for incurring a capital expenditure, the claim of the assessee would be within the scope of s. 36(1)(iii). Insofar as the instant case is concerned, the business of the assessee has been in operation hi....