TaxTMI 
TaxTMI 
TaxTMI 
2004 (10) TMI 53
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....lized in the account of the assessee, but on which the assessee did not claim depreciation or development rebate. The Department treated it as capital expenditure: The Assessing Officer had held against the assessee and charged the same to be a capital expenditure on which deduction under section 36(1)(iii) or 37 was held to be impermissible. The Commissioner of Income-tax (Appeals) affirmed the same. The Income-tax Appellate Tribunal also agreed with the view taken by the Commissioner of Income-tax (Appeals) and the Assessing Officer. This view was taken also for earlier years (1986-87) following which the decision in 1987-88 and 1988-89 was given. After Mr. A.K. Roychowdhury had addressed the court for a few days and the matter was heard-in-part successively, Dr. Pal came in aid of Mr. Roychowdhury and, in fact, the rincipal argument was advanced by Dr. Pal, crystallizing the submission of Mr. A.K. Roychowdhury. While Mr. M.P. Agarwal represented the Department and opposed the same. Section 43(1), Explanation 8: Its objects: Scope: The question seems to be already covered by different decisions of the apex court and the High Courts and there is no doubt about the position as....
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...., which would not debar the assessee from showing the account differently for the purpose of the Income-tax Act, 1961. This contention of Dr. Pal does not seem to cut any ice. Explanation 8 does not make any difference to the cost of asset when the assessee had not commenced its business at all incurring the expenditure in order to establish the business and an acquisition of an asset for the expansion of an existing business since commenced production. The confusion was created time and again without Explanation 8 being inserted in section 43(1) in interpreting the definition of "actual cost" in very many cases, to which we would refer, since cited by respective counsel. This clarification became necessary to remove such confusion. The clarification in Explanation 8 was not something new. It was in the nature of declaration of the status of the law, as it existed, however, effective from April 1, 1974. We are concerned with the assessment years 1987-88 and 1988-89, namely, after Explanation 8 was inserted by the Finance Act, 1986 very much applicable to 1987-88 and 1988-89 even without being retrospective. Since Explanation 8 does not make any distinction between acquisition of a....
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....se would be included in the actual cost and then it is to be treated as capital expenditure eligible for being capitalized on which depreciation and development rebate would be admissible. Therefore, in this case, we do not think that there is any difference or iota of dispute with regard to the provision, which has been made crystal clear by the decision in Challapalli Sugars [1975] 98 ITR 167 (SC). The above proposition stands clarified from the decisions cited by Mr. Agarwal Challapalli Sugars [1975] 98 ITR 167 (SC) proceeded on the footing of the 1922 Act wherein the expression "actual cost" was not defined and the question engaged the attention of the court as to whether interest paid before the commencement of production on the amount borrowed for the acquisition and installation of the plant and machinery can be considered to be part of the actual cost of the asset to the assessee. It was held that so far as the interest after the commencement of production in respect of capital borrowed for the purpose of business is concerned, the same was deductible under section 10(2)(iii). While proceeding to determine the question, the apex court had warned that the court has to bear ....
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....d.) [1966] 61 ITR 799, which was decided along with Challapalli Sugars Ltd. [1970] 77 ITR 392 followed by the Madras High Court in CIT v. L.G. Balakrishnan and Bros. (P.) Ltd. [1974] 95 ITR 284 and the Allahabad High Court in CIT v. J.K. Cotton Spinning and Weaving Mills Ltd. [1975] 98 ITR 153 to have taken the correct view. The same view was followed by the Bombay High Court in Ballarpur Paper and Straw Board Mills Ltd. v. CIT [1979] 118 ITR 613, wherein it was held that interest forms part of the actual cost for the purpose of depreciation and development rebate; and by the Gujarat High Court in CIT v. Tensile Steel Ltd. [1976] 104 ITR 581 since followed in Ballarpur Paper and Straw Board Mills Ltd. [1979] 118 ITR 613 (Bom). In Tensile Steel Ltd. [1976] 104 ITR 581 (Guj), it was held that interest incurred on deferred payment was capital expenditure to be added to the actual cost for the purpose of depreciation and development rebate. All these decisions were summarized in CIT v. India Steamship Co. Ltd. [1992] 196 ITR 917 (Cal) and held that the interest payable on deferred instalments of the purchase cost of the asset were capital expenditure to be added to the cost of the asse....
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....other words, in the absence of clear statutory indication to the contrary, the statute should not be read so as to permit an assessee two deductions . . ." It was not a case, which was concerned with the question in the context, which we are called upon to answer. Therefore, this decision does not help Dr. Pal. On the other hand, Mr. Agarwal relying on the said decision contended that the assessee being entitled to capitalize the same may be entitled to depreciation and development rebate, but it cannot claim the same as revenue expenditure. At the same time, he contended that an assessee cannot be allowed to claim benefit unless the deduction is eligible in law. We find substance in the said submission. Unless the law permits deduction or unless the law indicates the characteristic of an expenditure in order to be eligible for a particular kind of deduction, which must be clear and unambiguous and unless it is supported by law, no deduction can be availed of, even if claimed. Dr. Pal relied on CIT v. J.K. Industries (P.) Ltd. [1980] 125 ITR 218 (Cal) wherein it was held that when with the capital borrowed, the assessee had acquired a business asset for the purpose of its own busi....
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.... was held that the interest was deductible under section 36(1)(iii) since obtained for the purpose of the assessee's business and that the particular part of the business for which the loan was obtained had been transferred or closed down would not alter the fact that the loans, when obtained, were for the purpose of the assessee's business. The decision in CIT v. Sivakami Mills Ltd. [1997] 227 ITR 465 cited by Dr. Pal is equally distinguishable. Here also the question as to whether the interest was paid before the asset was first put to use was not under consideration. In that case, it was held that the payment of guarantee commission was unrelated to the working out of the cost of depreciable machinery, plant or other asset but was an expenditure which was incurred in the course of carrying on the business and not prior to the commencement of the business and that the payment was so closely related to the business that it could be viewed as an integral part of the conduct of the business and would be revenue expenditure and that it did neither bring into existence any asset of an enduring nature nor did it bring in any other advantage of an enduring benefit, that the acquisition....
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....d on the amount borrowed for purchase of machinery was a deductible amount. This case did not involve the question with regard to the interest payable before the asset was first put to use and as such this decision does not help Dr. Pal. Lastly Dr. Pal relied on Tetron Commercial Ltd. v. CIT [2003] 261 ITR 19 422 (Cal) of this very Bench wherein it was held that whether the deduction under section 36(1)(iii) is available or not is dependent on the question whether the capital borrowed is for the purpose of the business of the assessee. If it is found that the capital was borrowed for the purpose of business of the assessee, the interest payable thereon is admissible under the said section. It is immaterial whether the same is in the nature of capital expenditure or revenue expenditure. If the expenditure is in the nature of business expenditure which relates to any stage of the business activity carried on by the assessee, whether an isolated transaction or not, it is admissible for deduction under the said section. A business commences with the activities undertaken even at the preparatory stage for setting up of the business. Acquisition of immovable property for being used in t....