9911796707
TMI Blog1987 (6) TMI 105X X X X Extracts X X X X X X X X Extracts X X X X ..... 74 CTR (SC) 309 : (1975) 98 ITR 167 (SC), CIT vs. Polychem Ltd. (1975) 98 ITR 574 (Bom) Shree Vallabh Glass Works Ltd. vs. CIT (1981) 127 ITR 37 (Guj), Ballarpur Paper and Shaw Board Mills Ltd. vs. CIT (1979) 10 CTR (Bom) 227 : (1979) 118 ITR 613 (Bom), Addl. CIT vs. Rajendra Flour and Allied Industries P. Ltd. (1981) 128 ITR 402 (Del) CIT vs. Hindustan Polymers Ltd. (1985) 45 CTR (Bom) 165 : (1985) 156 ITR 860 (Bom). 2. The next issue the assessee pleaded is in respect of non-allowing capitalisation of interest to the tune of Rs. 1,68,59,106. The plea of the assessee was that out of this, Rs. 21,54,558 has been wrongly treated as Revenue expenditure. The assessee accepted the fact that the said amount of interest though related to the plant and machinery is for the period subsequent to the commencement of production and but for the amendment contained in s. 43(1) regarding cost of assets, the said amount is to be treated as part of capital cost only. Reliance was placed on CIT vs. Tinsile Steel Ltd. (1976) 104 ITR 581 (Guj), Ballarpur Paper and Shaw Board Mills Ltd. vs. CIT (1979) 10 CTR (Bom) 227 (1979) 118 ITR 613 (Bom), CIT vs. J.K. Cotton Spinning and Weaving Mills Ltd. (1975 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er hand was that what has not been allowed to be capitalised out of expenses, like salary, travelling, etc. are for the reason that they have no relation whatsoever, with the construction activity or the installation of the machinery as such. These are in the nature of general expenses which have to be incurred by the company whether or not there are construction activities. It was further pleaded that the Delhi High Court in the case of CIT vs. J.M. Industries Ltd. (1981) 129 ITR 373 (Del) was of the view that only expenses which could be said to have any relevance to the construction could be capitalised. 4.1. On the issue of interest in view of the amendment to s. 43(1), which was effective from 1st April, 1974, the claim of the assessee is not at all tenable. 4.2. On the issue of subsidy the plea of the assessee was that since it was given as a percentage of the cost of investment or the assets, it should be treated as contribution of cost by the authorities. As far as investment allowance on building equipment is concerned, the plea was that investment allowance is to be granted only on assets which are used in the business of the assessee. 4.3. On the issue of depreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company, expenses in connection with the issue of shares, debentures, prospectus, etc. are shown in the balance sheet separately under the head 'Misc. Expenditure.' Therefore, to this extent, the objection of the Department that some of the expenses are incurred on the above is not proper. As regards the expenses which are incurred regarding project as such, like project report, feasibility studies, financial studies, land surveys, location, raw material, acquisition, etc. covered in the projects are of the nature as defined under s. 35D of the IT Act, which expenses are allowable to the assessee over a period of 10 years from the year from which company commences production in a particular proportion. Therefore, even these expenses cannot be capitalised and the expenses as claimed does not indicate that these are in respect of the above. These are also not in the nature of financial expenses. These are in the nature of indirectly related and incidental to the construction. To say that no accounts need to be maintained during the period of constructions is a folly. The general administrative and office expenditure which is indirectly related to or incidental to the construction hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed out that this is as per the policy of the Government to provide such subsidies as an inducement for establishment of industries under the industrialisation policy. The quantum has to be preferred by the assessee on the basis of the cost incurred by it on the fixed assets, which is used as a measure to arrive at. The quantum of subsidy to be provided to the assessee. Therefore, it would be wrong to treat the amount of subsidy or a cost contribution. We, therefore, direct the ITO to allow depreciation and the investment allowance on the cost of assets as incurred without reducing therefrom the amount of central subsidy. 6. On the issue of claim of investment allowance on machinery used in the construction work the Karnataka High Court in the case of CIT vs. Mysore Iron & Steel Ltd. (1978) 115 ITR 219 (Kar) had held that it is allowable on the ground that the assessee itself carried on the construction of its factory and that the machinery. The observation was "when the assessee itself constructed building for expansion of its factory, it did so for the purposes of its business. When any machinery was used for such construction, then the machinery was used the purposes of its busi ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
