TMI Blog2014 (1) TMI 555X X X X Extracts X X X X X X X X Extracts X X X X ..... est paid on loan borrowed for purchase of new machinery - Revenue or capital - Held that:- Following Deputy Commissioner of Income-Tax – vs- Core Health Care Limited [2008 (2) TMI 8 - SUPREME COURT OF INDIA] - As per section 36(1)(iii) - There is no distinction between money borrowed to acquire a capital asset 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 - 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 - “Actual cost of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fee for Bandwidth charges which are again in the nature of licence fee and DOT WPC fees, which is an annual fee. The amount that is paid is Rs.76,90,000/- for the entire period. The assessee claimed deduction of the said amount spent on the ground that it is a revenue expenditure. It also claimed deduction for payment of interest on the loan borrowed for setting up of the said facility. The Assessing Authority was of the view that the aforesaid amount spent was not a revenue expenditure, but it is in the nature of capital expenditure as a new facility was set up by the assessee. It also held that, as the interest was paid on the loan for setting up of the said facility, the assessee is not entitled to deduction of said interest. Aggrieved b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Tribunal was correct in holding that a sum of Rs.23,39,359/- paid towards interest on plant and machinery purchased by the assessee should be treated as a revenue expenditure despite the same being added to the asset of the assessee? 4. The learned Counsel for the Revenue assailing the impugned order contended that the letter written by the assessee, which is extracted by the Tribunal in its order, clearly demonstrates that the assessee had set up a new project and for setting up a new project, he has incurred expenditure. Therefore, it is in the nature of a capital expenditure and the said expenditure is not liable to be deducted under Section 37 of the Act. Similarly, the interest paid on the borrowed amount for setting up the new pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lite Communications Limited, a service provider in the area of V-SAT communications and they have incurred the aforesaid expenditure. Therefore, it is a new project and not a part of the existing project or a business carried on by the Company with advanced technology. 7. The amount spent resulted in advantage of enduring benefit and therefore, the said expenditure is in the nature of a capital expenditure. 8. The Apex Court in the case of Empire Jute Co.Ltd. vs- Commissioner of Income-Tax reported in 1980 ITR 124 page 1 has held as under: (ii) There may be cases where expenditure, even if incurred for obtaining an advantage of enduring benefit, may, none-the-less, be on revenue account and the test of enduring benefit may break ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent businesses, it is held what the Court has to look is, was there any inter-connection, any inter-lacing, any inter-dependence, any unity at all embracing those two businesses? That inter-connection, inter-lacing, interdependence and unity are furnished in a case by the existence of common management, common business organization, common administration, common fund and a common place of business, then the irretrievable inference that is to be drawn is it is the same business and then the amount spent would be in the nature of revenue expenditure and not capital expenditure. In the instant case, the assessee is the same. Assessee is the person who borrowed money for setting up the V-SAT application and incurred the entire expenditure. Aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. 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. Actual cost of an asset has no relevancy in relation to section 36(1)(iii). The proviso inserted in section 36(1)(iii) by the Finance Act, 2003, with effect April 1, 2004, will operate prospectively. Held accordingly, that the assessee was entitled to deduction under section 36(1)(i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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