TaxTMI 
TaxTMI 
2003 (6) TMI 188
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....294/Del/1996, the Tribunal had directed the allowance of depreciation. Concurring with the same, we direct the AO to allow depreciation on the enhanced value of the cost of assets due to fluctuation in foreign exchange rates. This ground of appeal is, therefore, allowed. 4. Ground No. 3 raised by the assessee is against the disallowance of Rs. 9,15,981 sustained by the CIT(A) being 1/5th of the total deferred revenue expenditure amounting to Rs. 45,79,906. Briefly, the facts of the case are that the appellant is engaged in the manufacture/sale of automobile components. It also supplies the other parts manufactured by the other concerns. During the relevant previous year, the appellant had incurred an expenditure of Rs. 45,79,906 on account of foreign technicians' fees and designs, and drawings fees paid to the foreign collaborators in connection with the development of new models of front forks, shock absorbers and structs. Similar expenditure incurred in the past had been treated as revenue expenditure in the books of account and allowed as such by the Revenue. 5. In the year under appeal, it was decided by the appellant that the benefit arising from such expenditure,....
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....e of an enduring nature. For this purpose, the expenditure on this account is a revenue expenditure and not capital expenditure. 11. Payment for design and drawing charges has been made for design and drawing for shock absorbers for few models of two wheelers; the payment is again a part of day to day business. The payment on account of design and drawings has been allowed in full in subsequent years. 12. It has been held by the Courts repeatedly that where the expenditure is on obtaining access to technical knowledge, the expenditure is of the nature of revenue expenditure. The appellant has merely right to use these drawings and designs. 13. Reliance in regard to aforesaid claim of Rs. 45,79,906 of the appellant placed on the following decisions : (i) IAC vs. Rollatainers Ltd. (1987) 23 ITD 440 (Del) (ii) Dy. CIT vs. Metalman Auto (P) Ltd. (2001) 73 TTJ (Chd) 961 : (2001) 78 ITD 327 (Chd) (iii) India Petrochemicals Corpn. Ltd. vs. Dy. CIT (2002) 74 TTJ (Ahd) 281 : (2002) 81 ITD 263 (Ahd) (iv) Shriram Refrigeration Ind. Ltd. vs. CIT (1981) 127 ITR 746 (Del) (v) Triveni Engineering Works Ltd. vs. CIT (1982) 29 CTR (Del) 234 : (1....
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.... plant and machinery. The appellant while capitalising the expenditure in its books claimed deduction for the same under s. 36(1)(iii) of the Act while computing its taxable income. However, the AO held that since the borrowed funds were utilised for the purposes of purchasing plant and machinery, it followed necessary corollary that interest on such fund had to be capitalised. He, therefore, disallowed the deduction of interest. On appeal, the CIT(A) also confirmed the action by the AO. The assessee is in appeal before us against the findings of the CIT(A). 17. Learned counsel stated that under s. 36(1)(iii) of the Act, the amount of interest paid in respect of capital borrowed for the purposes of business or profession can be claimed as deduction in computing the income from business. Hon'ble Supreme Court in the case of India Cement Ltd. vs. CIT (1966) 60 ITR 52 (SC), while considering the provisions of s. 10(2)(xv) of the Act, 1922, had observed that a loan may be intended to be used for the purchase of raw material when it is negotiated. But the company may after raising the loan change its mind and spend it on securing capital asset. The Hon'ble Court held that it was righ....
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.... appellant-company is engaged in the manufacturing process. It has obtained certain loans from which the plant and machinery was purchased. Merely because plant and machinery was purchased from such borrowed fund will not make the borrowed fund as capital assets. Sec. 36(1)(iii) provides for deduction of interest paid in respect of capital borrowed for the purposes of the business or profession. When a borrowed fund is utilised for the purposes of acquisition of plant and machinery, it is also utilised for the purposes of business or profession. In the cases mentioned earlier, various Courts including the Hon'ble Supreme Court have taken the view that if the amount was borrowed for the purposes of business, interest on the same was allowable deduction under s. 36(1)(iii) of the Act irrespective of the fact whether such borrowed fund was utilised for acquiring a capital asset or the same was utilised as a working capital. Respectfully following the decisions mentioned above, we hold that the CIT(A) was not justified in disallowing the claim of the assessee. The addition sustained by the CIT(A) is deleted. 20. As regards the objection of the CIT(A) that the amount utilised in the ....
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.... 27. It is settled position that a gain arising from a fixed capital is a capital receipt not chargeable to tax. It is taxable as revenue item when it is referable to circulating capital or stock-in-trade. The fixed capital is what the owner turns to project by keeping in its own possession. Circulating capital is what he makes profit of by parting with and letting it change its masters. 28. The aforesaid contention is supported by following judicial precedents : (i) CIT vs. Tata Locomotives & Engineering Co. Ltd. (1966) 60 ITR 405 (SC) (ii) CIT vs. Mahindra & Mahindra Ltd. (1973) 91 ITR 130 (Bom) (iii) Sutlej Cotton Mills Ltd. vs. CIT 1978 CTR (SC) 155 : (1979) 116 ITR 1 (SC) (iv) Union Carbide India Ltd. vs. CIT (1980) 19 CTR (Cal) 351 : (1981) 130 ITR 351 (Cal) (v) Triveni Engineering Works Ltd. vs. CIT (1985) 156 ITR 202 (Del) (vi) CIT vs.CalcuttaElectricity Supply Corpn. Ltd. (1987) 59 CTR (Cal) 232 : (1987) 166 ITR 797 (Cal) (vii) EID Parry Ltd. vs. CIT (1988) 69 CTR (Mad) 49 : (1988) 174 ITR 11 (Mad) (viii) Gujarat Narmada Valley Fertilisers Ltd. vs. Dy. CIT (2001) 73 TTJ (Ahd) 787. 29. Regarding t....
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....48 ITR 162 (Cal) and CIT vs. Bharat Heavy Electricals Ltd. (1999) 156 CTR (Del) 12 : (1999) 239 ITR 756 (Del), for the proposition that foreign exchange loss was a revenue loss. By the same analogy, foreign exchange gain was revenue profit. 36. We have considered the rival submissions. Admittedly, the foreign contract was entered in connection with safeguarding the fluctuation in foreign currency for purchase of plant and machinery. Admittedly, the loan was taken for the purchase of capital assets. Thus, any gain connected with the assets will result into capital receipt. The Hon'ble Supreme Court in the case of Sutlej Cotton Co. Ltd. "The law may, therefore, now be taken to be well-settled that where profit or loss arises to an assessee on account of appreciation or depreciation in the value of foreign currency held by it, on conversion into another currency, such profit or loss would ordinarily be trading profit or loss if the foreign currency is held by the assessee on revenue account or as a trading asset or as part of circulating capital embarked in the business. But, if on the other hand, the foreign currency is held as a capital asset or as fixed capital, such pr....
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....ived from the industrial undertaking. Similarly, the details of interest earned by the assessee has been placed at p. 47 of the paper book. The entire interest earned by the assessee was in the nature of business income and should have been considered by the AO as business profit derived from the industrial undertaking. The learned counsel also stated that the details of miscellaneous expenses have been furnished at p. 48 of the paper book. It was stated that Bombay High Court in the case of CIT vs. Ahmedabad Electricity Co. Ltd. (1994) 120 CTR (Bom) 521 : (1993) 203 ITR 521 (Bom) held that the assessee was entitled to deduction under s. 80-I of the Act on hire charges of meters, transformers, etc., interest on call and fixed deposits, profits on exchange fluctuation. 41. Further reliance is also placed on following decisions: (i) CIT vs. Madras Motors Ltd. (2002) 174 CTR (Mad) 221 (ii) Ashok Leyland Ltd. vs. CIT (1997) 138 CTR (SC) 287 : (1997) 224 ITR 122 (SC) (iii) Rollatainers Ltd. vs. CIT in ITA No. 2979/Del/1993, (2000) 69 TTJ (Del) 8 (iv) CIT vs. Universal Radiators (P) Ltd. (1981) 128 ITR 531 (Mad) (v) CIT vs. Rane (Madras) Lt....