TaxTMI 
TaxTMI 
2010 (8) TMI 456
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.... Division. 3. In the Sugar Division, its factory at Sakthi Nagar is situated in Periyar District, Tamil Nadu has been noted as Unit-I, its manufacturing unit at Padamathur, Sivaganga Taluk, P.M.T. District also in Tamil Nadu is called Unit-II and its manufacturing unit at Sunapal, Barambagarh, Cuttack District, Orissa is known as Unit-III. 4. The Baramba Sugar Unit was stated to have commenced production on 11.12.1991 and 29,719 tonnes of sugarcane has been crushed. In Dhenkanal Sugar Unit, the construction work of the factory building, sugar godowns and staff quarters were stated to have been nearing completion as disclosed in the Annual Report of the respondent's company pertaining to the year 1992. The Dhenkanal Sugar Unit was expected to commence cane crush by January/February 1993. 5. The Appellate Authority noted that subsequent to the filing of the original return, the assessee filed revised return and claimed further revenue expenses relating to the expansion of the sugar units. It was claimed by the respondent assessee that the Baramba Sugar unit with crushing capacity of 1250 TCD was taken over by the company on 'Management Contract' for a period of 1....
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....enses claimed were incurred during the year and if so allow the claim in full. 10. The Revenue went on appeal before the Tribunal. The Tribunal also held that expenses incurred by the assessee in setting up the new sugar factories at Baramba and Dhenkanal in Orissa to an extent of Rs. 6,84,78,570/- does not amount to starting of a new business, but only expansion or extension of the business already being carried on and the expenses in connection with such expansion of business are deductible as revenue expenditure. The decisions relied upon by the Commissioner of Income Tax (Appeals) was followed by the Tribunal also. The Tribunal also noted that the same issue was earlier decided by the Tribunal in the assessee's own case in ITA No.2020(Mds)/1994, for the assessment year 1991-92 and ultimately upheld the assessee's claim and rejected the appeal. 11. Aggrieved by the orders of the Commissioner of Income Tax (Appeals) as confirmed by the Tribunal, the Revenue has come forward with this appeal. 12. We heard Mr.T.Ravi Kumar, learned standing counsel for the appellant and Mr.R.Vijaya Raghavan, learned counsel for the respondent assessee. 13. Mr.T.Ravi Kumar, learne....
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....re were capital in nature. 15. The learned counsel further contended that even the interest on capital was eligible as revenue expenditure under Section 36(1)(iii) of the Act which was thus permitted till the proviso came into force w.e.f. 01.04.2004 and that too prospectively. 16. The learned counsel therefore contended that the Commissioner of Income Tax (Appeals), as well as, the Tribunal was well justified in accepting the claim of the respondent in respect of those expenses as revenue expenditure in as much as there was no scope for treating any of those expenses as one of enduring in nature. The learned counsel therefore contended that the appeal does not merit any consideration and the same is liable to be rejected. 17. The learned counsel relied upon the decisions reported in 298 ITR 194 (SC) (Deputy Commissioner of Income Tax Vs. Core Health Care Ltd.,), 299 ITR 85 (SC) (Deputy Commissioner of Income Tax Vs. Gujarat Alkalies and Chemicals Ltd.), 205 CTR (Mad) 498(Commissioner of Income Tax Vs. Carborandum Universal Ltd.), 220 ITR 185 (Veecumsees Vs. Commissioner of Income Tax), 60 ITR 52 (India Cements Ltd. Vs.Commissioner of Income Tax), 293 ITR 459 (Mad)(Commiss....
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....s, electricity charges, rates and taxes, insurance premium, repairs and maintenance charges for building and machinery and motor vehicle and other office equipment maintenance, financial and bank charges, freight and transport, salaries, wages, bonus etc., workmen welfare expenses, interest charges and depreciation. 21. The said statement of expenditure which provide a break-up for the entire sum of Rs. 6,84,78,570/- which was a sum allowed as revenue expenditure by the Commissioner of Income Tax (Appeals) as well as the appellate Tribunal is not in dispute. Therefore, the question that arises for consideration is whether such expenditures are allowable as provided under Sections 36 and 37 of the Act. 22. When we refer to Sections 36 and 37 of the Act, under Section 36(1)(iii), the amount of interest paid in respect of capital borrowed for the purpose of the business or profession is an allowable deduction while computing the income referred to under Section 28 viz., 'Profits and gains of business or profession'. 23. Under Section 37 of the Act, any expenditure not being expenditure of the nature described in Sections 30 to 36 and not being in the nature of capital....
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....ce any such asset or advantage but for running the business or working it with a view to produce the profits it is a revenue expenditure......" (Emphasis added) 27. In the decision reported in (1997) 224 ITR 414 (Ballimal Naval Kishore Vs. Commissioner of Income Tax), the Hon'ble Supreme Court followed the Division Bench decision of the Bombay High Court reported in (1956) 30 ITR 338 (New Shorrock Spinning and Manufacturing Co. Ltd. Vs. Commissioner of Income Tax), in which the Hon'ble The Chief Justice Changla has laid down the principle in the following words:- "If the amount spent was for the purpose of bringing into existence a new asset or obtaining a new advantage, then obviously such an expenditure would not be an expenditure of a revenue nature but it would be a capital expenditure, and it is clear that the deduction which the Legislature has permitted under section 10(2)(v) is a deduction where the expenditure is a revenue expenditure and not a capital expenditure." 28. In the decision reported in (2001) 249 ITR 319 (Commissioner of Income Tax Vs. Sharpedge Ltd.) a Division Bench of the Delhi High Court has held as under: ".....The interest ....
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....or a revenue asset. All that the section requires is that the assessee must borrow capital and the purpose of the borrowing must be for business which is carried on by the assessee in the year of account. What clause (iii) emphasises is the user of the capital and not the user of the asset which comes into existence as a result of the borrowed capital unlike section 37 which expressly excludes an expense of a capital nature. The Legislature has, therefore, made no distinction in section 36(1)(iii) between "capital borrowed for a revenue purpose" and "capital borrowed for a capital purpose". An assessee is entitled to claim interest paid on borrowed capital provided that capital is used for business purpose irrespective of what may be the result of using the capital which the assessee has borrowed. Further, the words "actual cost" do not find place in section 36(1)(iii) of the 1961 Act which otherwise find place in sections 32, 32A, etc. of the 1961 Act. The expression "actual cost" is defined in section 43(1) of the 1961 Act which is essentially a definition section which is subject to the context to the contrary." It went on to add as under in paragraph 10: "10......
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....der s.36(1)(iii) of the Act, which reads as follows: "36(1)(iii). The amount of the interest paid in respect of capital borrowed for the purposes of the business or profession." From a very reading of the above clause, it is clear that three conditions are required to be specified to enable the assessee to claim deduction in respect of interest on borrowed money, which are as follows: (1) There should be borrowal of money by the assessee; (2) It must be for the purpose of business; and (3) The interest must be paid on the borrowed money. In this case, both the authorities below had given a concurrent finding that the assessee borrowed money for the purpose of expansion of the projects and paid interest on the borrowed money. Hence, the claim of the assessee under s.36(1)(iii) of the Act is in conformity with law." 33. in another Division Bench decision of this Court reported in (2007) 293 ITR 459 (Mad) (Commissioner of Income Tax Vs. Rane (Madras) Ltd.), the question that arose for consideration was whether the expenditure incurred by the assessee in setting up a new factory at Pondicherry is revenue in nature on the ground t....