TaxTMI 
TaxTMI 
2003 (1) TMI 67
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....he case. He pointed out the perversity, leading us through the materials placed before this court. The immovable property was purchased for the purpose of the business of the assessee which had already commenced the business. The interest paid on the borrowed capital for acquiring the immovable property, as an asset of the assessee, is a revenue expenditure. The business in real estate had commenced as soon the property was purchased and taken delivery of. It continues and steps into the second stage as soon construction started. Therefore, the interest paid on the borrowed capital is admissible to be deducted under section 36, sub-section (1), clause (iii), of the Income-tax Act, 1961. The rejection of the accounts on the ground that it was shown as advance against immovable property is immaterial. The assessee has its right to maintain its accounts in its own system. It is the nature and character of the amount that has to be looked into for the purpose of imposing tax liability under the Act. The finding of the Tribunal is not a finding of fact but an inference drawn on the basis of the facts found. As such, it is a question of law as has been formulated. Though the assessee was....
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....992] 196 ITR 917 (Cal) ; Dey's Medical Stores Manufacturing P, Ltd. v. CIT [1986] 162 ITR 630 (Cal) and Ritz Continental Hotels Ltd. v. CIT [1978] 114 ITR 554 (Cal) in order to support his contention. Appellant's reply : Learned counsel for the appellant, however, in reply contended that the four decisions cited by learned counsel for the respondent have no manner of application in the present case. The decision in CIT v. India Steamship Co. Ltd. [1992] 196 ITR 917 (Cal) is distinguishable on the facts. He had also pointed out from the balance-sheet that the interest paid on the borrowed capital has been shown in the balance-sheet as against capital and assets. It is an expenditure and, as such, could not be shown in the profit and loss account. There is no scope of showing business-wise account, as contended by learned counsel for the respondent. Learned counsel for the appellant further contended that the Companies Act does not provide for inclusion of such statement in any of the statements or reports of the company. Therefore, the contention of learned counsel for the respondents should not be given much importance. The principle : Whether the deduction under sectio....
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.... by learned counsel for the respondent. In our view, "business" is an adventure or undertaking to gain profit out of the transaction. Even if it is one transaction, still then it is an adventure and a business. If someone starts a business and then leaves it after one transaction, even then it would be a business. As such a sporadic action cannot be singled out to discard that it is not part of the business. Therefore, the contention of learned counsel for the respondent cannot be accepted. In order to support the contention, we may beneficially refer to the decision in Edwards (H. M. Inspector of Taxes) v. Bairstow and Harrison [1955] 28 ITR 579 (HL) ; [1955] 36 TC 207 (HL). The facts : In this case the assessee had purchased two immovable properties being land at Gurgaon, Haryana, and a flat at Shibpur, Howrah. The memorandum of association in its objects clause 5 provides for undertaking of business in real estate. The property was purchased in the earlier year. Interest on the borrowed capital was allowed under section 36(1)(iii) in the earlier year. It was claimed in the previous year. This has since been disallowed. According to the memorandum of association, one of the....
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....rest paid need not, however, borrow the character of a revenue outgoing to be admissible as allowance under clause (iii) of section 36(1), but the interest must be paid in respect of capital borrowed. In Addl, CIT v. Akkamba Textiles Ltd. [1979] 117 ITR 294 (AP), it was held that the question whether a particular expenditure is revenue expenditure incurred for the purpose of the business must be viewed in the larger context of business necessity or expediency. The transaction of acquisition of assets closely related to the commencement and carrying on of business by an assessee is admissible for deduction. The special leave petition against this decision was dismissed by the apex court in Addl. CIT v. Akkamamba Textiles Ltd. [1997] 227 ITR 464. In Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167 (SC), it was held that the interest paid before the commencement of production, on amounts borrowed by the assessee for the acquisition and installation of plant and machinery forms part of the actual cost of the assets to the assessee within the meaning of expression in section 10(5) of the 1922 Act entitling the assessee to depreciation allowances and development rebate with reference ....
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....computing the profits and gains of the assessee for the relevant year when the activity is undertaken. In Sarabhai Management Corporation Ltd. v. CIT [1976] 102 ITR 25, the Gujarat High Court took the same view and held that the business commences with the first activity for acquiring by purchase or otherwise, immovable property. There may be an interval between the setting up of the business and the commencement of the business. All expenses incurred during that interval are also permissible for deduction. In CIT v. Sarabhai Management Corporation Ltd. [1991] 192 ITR 151 (SC), the decision of the Gujarat High Court was affirmed and went a step ahead that even the activities at a preparatory stage is also admissible. The nature of transaction, not the description, is material : A taxpayer is free to employ, for the purpose of his trade, his own method of keeping accounts. It was so held in Investment Ltd. v. CIT [1970] 77 ITR 533 (SC). The entries made by an assessee in his books of account are not determinative. What is necessary to be considered is the nature of the transaction. It was so held in the decision in Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1 (SC). It is n....
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.... this decision as discussed hereinbefore does not help him having regard to the facts and the circumstances of the case. He next relied upon Ritz Continental Hotels Ltd. v. CIT [1978] 114 ITR 554 (Cal) in order to contend that interest paid on capital prior to the commencement of business would not be admissible. But the said decision is distinguishable on facts. In the said case the interest was payable on a sum spent by the Life Insurance Corporation with effect from August 1, 1960, on a borrowed capital even before May 18, 1961, the date the assessee-company was incorporated. Therefore, this decision does not help him. He next relied on Dey's Medical Stores Manufacturing P. Ltd. v. CIT [1986] 162 ITR 630 (Cal), the facts of this case ire also distinguishable. In this case the expenditure was spent on a new project, which was distinct and separate from the existing business. Therefore, the capital borrowed for a different business cannot be included in the existing business. Though the same can be claimed in respect of the new project, if it was an assessee. He had also relied on CIT v. India Steamship Co. Ltd. [1992] 196 ITR 917 (Cal). This case was related to grant of developme....