TaxTMI 
TaxTMI 
1995 (5) TMI 9
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....year being the period from April 1, 1972 to March 31, 1973. The assessee carries on the business of manufacture and sale of industrial thermostats under the name and style, Labequip Instrument Corporation. He commenced the said business in 1968 and carried it on in a place in Triplicane High Road, Madras. The Government of Tamil Nadu formed a functional industrial estate for instruments, electronics at Adyar, Madras. The assessee applied for allotment of one unit therein to him. The assessee was allotted unit No. 1(5) in the first instance ; but the same was later changed to unit No. 11(4). The terms and conditions under which the allotment was made were set out in the letter issued by the Director of Industries and Commerce, to the assessee, according to which, the assessee was to pay Rs. 1,02,663 to the Government of Tamil Nadu in respect of the said allotment and of the said amount 10 per cent. was payable in advance and the balance was payable in 30 half-yearly instalments of Rs. 3,080 each together with interest at 8 per cent. thereon. The assessee was placed in possession of the unit in December, 1971, whereupon he shifted his business to the said unit. The assessee also exec....
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....following the ruling of the Supreme Court in Bombay Steam Navigation Co. (1953) P. Ltd. v. CIT [1965] 56 ITR 52 was of the view that it cannot be said that the assessee had borrowed capital from the Government of Tamil Nadu for the purpose of its business by reason of its having undertaken to pay the consideration for the allotment of a unit in the industrial estate in future instalments. With regard to the contention of the assessee that in any event, interest should be allowed under section 37(1) of the Act as expenditure paid out or expended wholly and exclusively for the purpose of the business, the Appellate Tribunal was of the following view : " It has, therefore, to be considered firstly whether the payment of interest by the assessee to the Tamil Nadu Government in respect of the unit allotted to him in an industrial estate was a capital expenditure and, secondly, whether it could be said to have been laid out wholly and exclusively for the purpose of the business. Here again, we are of the opinion that the case is governed by the principle laid down by the Supreme Court in Bombay Steam Navigation Co. (1953) P. Ltd. v. CIT [1965] 56 ITR 52. As already stated, the alterna....
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..../assessee. In the instant case, we are of the opinion that there is no error of law in the above view expressed by the Income-tax Appellate Tribunal. The Supreme Court in Bombay Steam Navigation Co. (1953) P. Ltd . v. CIT [1965] 56 ITR 52, with reference to section 10(1) of the Indian Income-tax Act, 1922, has observed as follows (at page 56) : " Tax is payable under section 10(1) by an assessee on its profits or gains earned in the business, profession or vocation carried on by him in the year of account. If no business at all is carried on in that year, liability to tax does not arise under section 10(1). Clause (iii) of sub-section (2) of section 10 provides: 'Such profits or gains shall be computed after making the following allowances, namely . . . (iii) in respect of capital borrowed for the purposes of the business, profession or vocation, the amount of interest paid.' The proviso and the Explanation with which we are not concerned in these appeals need not be set out. The expression, 'such profits or gains' in sub-section (2), on the plain language used by the Legislature, means profits or gains of a business carried on in the year of account. In the compu....
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....to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head, 'Profits and gains of business or profession." From a reading of the above section, it is clear that section 37(1) of the Act provides that any expenditure not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee, laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". In the instant case, the assessee had already commenced his business in 1971 and later acquired the industrial unit from the Government of Tamil Nadu in 1973. The interest payable to the Government of Tamil Nadu by the assessee is not on a loan of money borrowed. To be admissible as an allowance, interest must be paid in respect of capital borrowed ; interest paid, but not in respect of capital borrowed cannot be allowed.....