TMI Blog2004 (4) TMI 270X X X X Extracts X X X X X X X X Extracts X X X X ..... nd to procure easy movement of its raw materials and finished goods. The company has no right on the railway siding. The entire amount was claimed as a revenue expenditure. The Assessing Officer held that the assessee has acquired the assets of enduring benefit in the shape of railway siding and the same has been brought into existence by incurring expenditure of considerable sum of money. He further observed that the railway sidings were constructed at the place, where no railway siding was inexistence. By constructing railway siding, the assessee enjoyed the benefit of lasting duration. By referring to the various judgments of House of Lords, the Assessing Officer held that the cost of creating, acquiring or enlarging the permanent structure of which income was to be the fruit will be of capital nature. He, therefore, held that the assessee-company had brought into existence a tangible asset as the expenditure has been incurred for creating and enlarging the profit earning structure of the assessee-company. As per Assessing Officer, it is not a case of maintenance of capital or an expenditure incurred for the purpose of merely facilitating the business of the appellant, but a new ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r ld. A.R., the Assessing Officer had relied on a number of decisions of the House of Lords and the Court of Appeals of England, but he ignored the decision of the Hon'ble Supreme Court in the case of CIT v. A. Gajapathy Naidu [1964] 53 ITR 114 to the effect that nothing can be gained by trying to construe the Indian Act in the light of English decisions. It is only on fundamental concepts, on which no decision of the Supreme Court is available, the decision of the English Courts may be useful as a guide. He further argued that the assessee's case is squarely covered by the decision of the Hon'ble Gauhati High Court in the case of CIT v. Bongaigaon Refinery Petro Chemicals Ltd. [1996] 222 ITR 208 and Hon'ble Supreme Court in the case of L.H. Sugar Factory Oil Mills (P.) Ltd. v. CIT [1980] 125 ITR 293. The ld. A.R. further submitted that the Assessing Officer had relied on the decision of Travancore-Chochin Chemicals Ltd.'s case, even though the question of ownership of land was not clear from the facts of that case. Besides, the said case has been disapproved by the Hon'ble Supreme Court in the case of L.H. Sugar Factory Oil Mills (P.) Ltd. The ld. A.R. relied on the judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee for treatment of such expenditure, it is not open to the assessee to take a different stand for claiming such expenditure as revenue in its return of income. After referring to various judgments, the Assessing Officer finally reached to the conclusion that on the facts and circumstances of the case, the expenditure incurred was capital in nature and, therefore, the assessee was not entitled to claim this expenditure as revenue. 9. Before proceeding to decide the nature of expenditure of the income-tax purpose, we may highlight the policy of Government of India, Ministry of Railways regarding any such expenditure being incurred by the private parties. As per Annexure-1 submitted by the ld. A.R. and which is placed in the record, following are the main guidelines, regarding development of railway sheds/sidings by private investment in railway premises: "(1) Railway will allow investment by private parties in development of goods shed/sidings. Railway would, however, reserve the right to close the goods shed/siding if the same becomes financially or operationally unsustainable at some stage by giving notice of 90 days. (2) The facilities so created would be used not only by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods. There can be no doubt that construction of these sheds facilitated the business operation of the assessee and enabled the management and conduct of assessee's business to be carried on more efficiently and profitably. There is also no doubt that the advantage secured for the business of the assessee was of a long duration, inasmuch as, it would last so long as the railway sidings continued to be in motorable condition, subject to the restrictions and guidelines of the Indian Railway as discussed above, but it was not an advantage in the capital field, because no tangible or intangible asset was acquired by the assessee nor was there any addition to or expansion of profit making apparatus of the assessee-company. The expenditure was incurred by the assessee merely for the purpose of facilitating the conduct of the business of the assessee and making it more efficient and profitable and, therefore, it was clearly an expenditure on revenue account. The test of capital or revenue expenditure as discussed by the Assessing Officer is undoubtedly a well-known test for distinguishing between capital and revenue expenditure, but it must be remembered that this test is not of universal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. 13. While applying the principle laid down by the Hon'ble Supreme Court, we find that in the instant case, even though there is an advantage of enduring benefit, but at the very same time we also find that this addition is not in the capital field but was merely meant for bringing advantage in facilitating the assessee's trade operation and enabling the management and conduct of the business to be carried on more efficiently and profitably while leaving fixed capital untouched. There is plethoria of judgments in support of the proposition that accounting entry is not decisive for considering the assessee's claim under the Income-tax Act which is a separate code in itself. Thus the Accountancy is notsine quanon in determining the taxability or otherwise of an income or deductibility or otherwise of any item of expenditure. As the assessee-company has no right/title on the railway siding, it was to write-off the expenditure on constructing the railway siding over a period of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 17. Rival contentions have been heard and records perused. 18. The facts in brief are that the assessee-company paid interest of Rs. 2.26 crores on Bank loan and other loans borrowed for the second kiln which commenced production in the next financial year. The interest paid has been capitalised by the assessee in its books of account, but the same was claimed as revenue expenditure deductible under section 36(1)(iii), in the return of income. In the course of assessment, the Assessing Officer held that after capitalisation of interest, the amount of interest has merged into the cost of the assets and has lost its original character. As per Assessing Officer, in the final accounts of the assessee-company there is no recognisation of Rs. 2.26 crores paid as interest on borrowing and the same has been recognised as interest capitalised. As per Assessing Officer, provision of section 36(1)(iii) is not applicable in respect of such interest expenditure. The Assessing Officer, therefore, held that treatment given by the assessee in respect of interest as an integral part of the cost of assets is in accordance with the accepted principle of accountancy and the assessee is not enti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the assessee's claim for capitalised interest. 21. On the other hand, the ld. A.R. supported the orders of the ld. CIT(A) and submitted that so far as the assessee's claim of deduction of interest is concerned, there is no bar under section 36(1)(iii) for not allowing any claim of interest, when the fund has been deployed for capital asset and not for revenue asset. As per Ld. A.R., the basic criteria for allowing deduction under section 36(1)(iii) is that the amount should be borrowed for the purpose of the business, irrespective of its utilisation or acquisition of capital assets or for revenue assets/expenses. 22. We have considered the rival contentions, carefully gone through the orders of the authorities below and deliberated upon the case laws discussed by the Assessing Officer and ld. CIT(A) as well as referred by the ld. D.R. and A.R. in the course of hearing in the context of factual matrix of the case. From the record, we find that during the year under consideration, the assessee-company has undertaken expansion project. The project cost was Rs. 80 crores out of which Rs. 55 crores was arranged from Banks and various other financial institutions. The project was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile computing the income chargeable under the head 'profit and gains of business or profession' as laid down in section 37, but in the same section the portion in parenthesis lays down that such expenditure has to be not being expenditure of the nature described in sections 30 to 36. Therefore, there is a specific provision dealing with interest paid/payable in respect of borrowings incurred for the purpose of business and, hence, the general provision, viz., section 37 cannot come into play. The concept and meaning of 'actual cost', which is a definition laid down in section 43(1), is for a limited purpose, viz., at the point of time when deduction is to be granted for the purpose of wear and tear (section 32) or an incentive for the purpose of setting up a specified industry (section 32A). The term 'actual cost' is applicable only in relation to an asset as against the fresh capital borrowed used in clause (iii) of section 36(1). The term capital borrowed in the said provision is of much wider import than the phrase 'actual cost'. The contention of the Assessing Officer to the effect that by virtue of Explanation 8 below section 43(1), any interest which is paid for a period prio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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