TMI Blog2003 (6) TMI 188X X X X Extracts X X X X X X X X Extracts X X X X ..... This ground of appeal is, therefore, allowed. 4. Ground No. 3 raised by the assessee is against the disallowance of Rs. 9,15,981 sustained by the CIT(A) being 1/5th of the total deferred revenue expenditure amounting to Rs. 45,79,906. Briefly, the facts of the case are that the appellant is engaged in the manufacture/sale of automobile components. It also supplies the other parts manufactured by the other concerns. During the relevant previous year, the appellant had incurred an expenditure of Rs. 45,79,906 on account of foreign technicians' fees and designs, and drawings fees paid to the foreign collaborators in connection with the development of new models of front forks, shock absorbers and structs. Similar expenditure incurred in the past had been treated as revenue expenditure in the books of account and allowed as such by the Revenue. 5. In the year under appeal, it was decided by the appellant that the benefit arising from such expenditure, though on revenue account, will be availed in the future years and, therefore, it was decided to treat the expenditure as deferred revenue expenditure. The appellant debited only Rs. 9,15,981 out of the aforesaid expenditure in its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or shock absorbers for few models of two wheelers; the payment is again a part of day to day business. The payment on account of design and drawings has been allowed in full in subsequent years. 12. It has been held by the Courts repeatedly that where the expenditure is on obtaining access to technical knowledge, the expenditure is of the nature of revenue expenditure. The appellant has merely right to use these drawings and designs. 13. Reliance in regard to aforesaid claim of Rs. 45,79,906 of the appellant placed on the following decisions : (i) IAC vs. Rollatainers Ltd. (1987) 23 ITD 440 (Del) (ii) Dy. CIT vs. Metalman Auto (P) Ltd. (2001) 73 TTJ (Chd) 961 : (2001) 78 ITD 327 (Chd) (iii) India Petrochemicals Corpn. Ltd. vs. Dy. CIT (2002) 74 TTJ (Ahd) 281 : (2002) 81 ITD 263 (Ahd) (iv) Shriram Refrigeration Ind. Ltd. vs. CIT (1981) 127 ITR 746 (Del) (v) Triveni Engineering Works Ltd. vs. CIT (1982) 29 CTR (Del) 234 : (1982) 136 ITR 340 (Del) (vi) CIT vs. Bhai Sunder Dass Sons (P) Ltd. (1986) 158 ITR 195 (Del) (vii) IAC vs. Bajaj Tempo Ltd. (1996) 55 TTJ (Pune)(SB) 43 : (1996) 218 ITR 147 (Pune)(SB) (viii) CIT vs. IAEC (Pumps) Ltd. (1998) 150 CTR (SC) 126 : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d necessary corollary that interest on such fund had to be capitalised. He, therefore, disallowed the deduction of interest. On appeal, the CIT(A) also confirmed the action by the AO. The assessee is in appeal before us against the findings of the CIT(A). 17. Learned counsel stated that under s. 36(1)(iii) of the Act, the amount of interest paid in respect of capital borrowed for the purposes of business or profession can be claimed as deduction in computing the income from business. Hon ble Supreme Court in the case of India Cement Ltd. vs. CIT (1966) 60 ITR 52 (SC), while considering the provisions of s. 10(2)(xv) of the Act, 1922, had observed that a loan may be intended to be used for the purchase of raw material when it is negotiated. But the company may after raising the loan change its mind and spend it on securing capital asset. TheHon ble Courtheld that it was rightly held that the purpose for which the loan was required was irrelevant to the consideration of the question whether the expenditure for obtaining the loan was revenue expenditure or capital expenditure. It was stated that in the case of running business interest on money borrowed for purposes of business is r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid in respect of capital borrowed for the purposes of the business or profession. When a borrowed fund is utilised for the purposes of acquisition of plant and machinery, it is also utilised for the purposes of business or profession. In the cases mentioned earlier, various Courts including the Hon ble Supreme Court have taken the view that if the amount was borrowed for the purposes of business, interest on the same was allowable deduction under s. 36(1)(iii) of the Act irrespective of the fact whether such borrowed fund was utilised for acquiring a capital asset or the same was utilised as a working capital. Respectfully following the decisions mentioned above, we hold that the CIT(A) was not justified in disallowing the claim of the assessee. The addition sustained by the CIT(A) is deleted. 20. As regards the objection of the CIT(A) that the amount utilised in the purchase of the plant and machinery has been capitalised will not alter the situation. Under s. 36(1)(iii), one has to see whether the amount borrowed was for the purposes of business or not. The business includes the purchase of capital assets also. Without plant and machinery, there cannot be any business. We, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... makes profit of by parting with and letting it change its masters. 28. The aforesaid contention is supported by following judicial precedents : (i) CIT vs. Tata Locomotives Engineering Co. Ltd. (1966) 60 ITR 405 (SC) (ii) CIT vs. Mahindra Mahindra Ltd. (1973) 91 ITR 130 (Bom) (iii) Sutlej Cotton Mills Ltd. vs. CIT 1978 CTR (SC) 155 : (1979) 116 ITR 1 (SC) (iv) Union Carbide India Ltd. vs. CIT (1980) 19 CTR (Cal) 351 : (1981) 130 ITR 351 (Cal) (v) Triveni Engineering Works Ltd. vs. CIT (1985) 156 ITR 202 (Del) (vi) CIT vs.CalcuttaElectricity Supply Corpn. Ltd. (1987) 59 CTR (Cal) 232 : (1987) 166 ITR 797 (Cal) (vii) EID Parry Ltd. vs. CIT (1988) 69 CTR (Mad) 49 : (1988) 174 ITR 11 (Mad) (viii) Gujarat Narmada Valley Fertilisers Ltd. vs. Dy. CIT (2001) 73 TTJ (Ahd) 787. 29. Regarding treating the profit as speculation profit, the learned counsel stated that s. 43(5) of the Act defines "speculative transaction" to mean a transaction in which a contract for the purpose of sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips. 30. The object of such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reign currency for purchase of plant and machinery. Admittedly, the loan was taken for the purchase of capital assets. Thus, any gain connected with the assets will result into capital receipt. The Hon ble Supreme Court in the case of Sutlej Cotton Co. Ltd. "The law may, therefore, now be taken to be well-settled that where profit or loss arises to an assessee on account of appreciation or depreciation in the value of foreign currency held by it, on conversion into another currency, such profit or loss would ordinarily be trading profit or loss if the foreign currency is held by the assessee on revenue account or as a trading asset or as part of circulating capital embarked in the business. But, if on the other hand, the foreign currency is held as a capital asset or as fixed capital, such profit or loss would be of capital nature." 37. Hon bleDelhiHigh Court in the case of Triveni Engineering Works followed the same. The Ahmedabad Bench of the Tribunal in the case of Gujarat Narmada Valley Enterprises: "After considering the rival submissions we do not have any hesitation in holding that the receipt by way of gain on cancellation of foreign exchange contracts is a capital re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the details of miscellaneous expenses have been furnished at p. 48 of the paper book. It was stated that Bombay High Court in the case of CIT vs. Ahmedabad Electricity Co. Ltd. (1994) 120 CTR (Bom) 521 : (1993) 203 ITR 521 (Bom) held that the assessee was entitled to deduction under s. 80-I of the Act on hire charges of meters, transformers, etc., interest on call and fixed deposits, profits on exchange fluctuation. 41. Further reliance is also placed on following decisions: (i) CIT vs. Madras Motors Ltd. (2002) 174 CTR (Mad) 221 (ii) Ashok Leyland Ltd. vs. CIT (1997) 138 CTR (SC) 287 : (1997) 224 ITR 122 (SC) (iii) Rollatainers Ltd. vs. CIT in ITA No. 2979/Del/1993, (2000) 69 TTJ (Del) 8 (iv) CIT vs. Universal Radiators (P) Ltd. (1981) 128 ITR 531 (Mad) (v) CIT vs. Rane (Madras) Ltd. (1998) 148 CTR (Mad) 404 : (1999) 238 ITR 377 (Mad) (vi) CIT vs. Buckau Wolf NewIndiaEngg. Works Ltd. (1991) 187 ITR 464 (Bom) (vii) Dy. CIT vs. Transpower (P) Ltd. (2001) 72 TTJ (Gau) 867 : (2002) 80 ITD 1 (Gau) 42. However, regarding rent, the learned counsel stated that the same was not business profit as the same was not derived from the industrial undertaking. 43. We have co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preciation with reference to the enhancement of cost due to exchange rates fluctuation. 53. We have dealt with this issue in ground Nos. 1 and 2 in the appeal for asst. yr. 1993-94, and in view of our findings therein, the claim of the assessee is allowed. This ground of appeal is allowed. 54. Ground No. 2 raised by the assessee is against CIT(A) s orders confirming the disallowance of Rs. 6,79,856 and Rs. 7,87,063 representing technical fee expenses and design and drawing fee expenses. 55. We have adjudicated this issue in the asst. yr. 1993-94 and in view of our findings therein, the issue is set aside and restored back to the file of the AO to examine the issue afresh keeping in view the agreement entered into between the assessee-company and Showa Manufacturing Co. Ltd. This ground of appeal is allowed for statistical purposes. 56. Ground No. 3 relates to the deduction under s. 80-I of the Act. 57. We have adjudicated this issue in the asst. yr. 1993-94 and in view of our findings therein, the AO is directed to allow deduction under s. 80-I of the Act keeping in view our directions for asst. yr. 1993-94. This ground of appeal is partly allowed. 58. In the net result ..... X X X X Extracts X X X X X X X X Extracts X X X X
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