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2014 (12) TMI 885 - AT - Income TaxVarious expenses incurred prior to setting up of Plant and machinery - Held that- The expenditure incurred by the assessee on account of salary, wages, power charges, repair maintenance, professional fees etc. are prior to the date of setting up of plant and machinery so acquired by the assessee - though the expenditure has been incurred on account of salary, wages, power charges, repair maintenance, professional fees etc. but the same is with respect to a new plant and machinery acquired by the assessee and before the same is put to use – the expenses was incurred for bringing a new asset into existence – as decided in Dalmia Jain and Co. Ltd. Vs. CIT [1971 (7) TMI 2 - SUPREME Court] it is the real nature and quality of the payment and not quantum or manner of the payment which would prove decisive - If the object of making payment is to acquire a capital asset the payment would partake character of the capital payment even though it is not made in lumpsum but by installment - even in case of expansion of existing business, the expenditure incurred for acquiring the additional plant and machinery will be in the nature of capital expenditure - If the outlay is made for the extension of business, it will be treated in the capital filed and not revenue. Expenses made under the head trial run expenses during construction period – Capital expenses or not - Whether on the date of trial run, the plant and machinery acquired by the assessee was set up or not – Held that:- If the expenditure even on trial run is considered as prior to the setting up of plant and machinery then it cannot be allowed as revenue expenditure but has to be capitalized and being part of cost of the newly acquired capital asset - The plant and machinery is set up when it is established and in ready to start function - the plant must be put into such shape and stage that it can start functioning for the purpose of business of the assessee - the trial run is one stage prior to discharge the functions for which it has been acquired - until and unless a successful trial run is completed, the newly acquired machinery cannot be said to have put in such a shape that it can start functioning as business asset and, therefore, it cannot be said that the plant and machinery has been set up - Prior to the installation of the machinery and bring to the shape to be ready to discharge the function the activities carried out are merely operations for setting up of the plant - the plant and machinery could be treated as set up only as a culmination of all these operations, which are necessary for establishing the plant and machinery and bring in the shape as it is ready to discharge function - the expense which have been incurred by the assessee prior to setting up the plant and machinery are capital in nature and cannot be allowed. Term loan interest to be treated as revenue expenditure or not – Held that:- As per proviso to Section 36(1)(iii), interest on term loan is to be allowed only from the date when asset is first put to use - Prior to it, such expenditure cannot be allowed as Revenue expenditure – as decided in ESSAR STEEL INDIA LTD Versus ADDL COMMISSIONER OF INCOME TAX & ASSTT COMMISSIONER OF INCOME TAX [2013 (11) TMI 278 - ITAT MUMBAI] which is - expenditure was claimed as Revenue but the same was not allowed – Decided against assessee.
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