TMI Blog1999 (12) TMI 134X X X X Extracts X X X X X X X X Extracts X X X X ..... business of the company was of poultry breeding, rearing, raising and production of one day old broiler chicks and hatching eggs. The company bought one day old broiler parent stocks from M/s. Venco Research and Breeding Farms Pvt. Ltd. The parent stocks were housed in special sheds under quarantine and were reared under very strict scientifically controlled programme. The assessee-company had entered into an agreement with M/s. Venkateshwar Farms Ltd. taking a shed on lease for lodging these broilers. Commercial production of the assessee-company was started on 18th November, 1988. 2. The assessee-company approached Allahabad Bank for a loan of Rs. 161.86 lakhs for the purpose of acquiring sheds for housing the birds. The loan was sanct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts on its apportionment. He accordingly, added a sum of Rs. 80,930 to the income of the assessee. 3. On appeal, the Commissioner (Appeals) confirmed the addition. He held that in the case of the assessee, loan was taken primarily for setting up of the business and for acquisition of certain assets worth Rs. 161.86 lakhs. He tried to distinguish the case of India Cements Ltd. and observed that in that case, the loan was utilised to pay off prior debt of Rs. 25 lakhs of two companies and balance amount of Rs. 15 lakhs was utilised for working fund. He therefore, held that the ratio laid down in the case of India Cements Ltd. was not of any assistance to the assessee. Accordingly, he confirmed the addition. 4. Shri K.A. Sathe, the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) that the loan was obtained from Allahabad Bank for setting up of the business is clearly erroneous. The assessee has already set up its business in rented sheds and it was only, for expansion of its business activities that the loan was obtained. It was not for the purpose of setting up of the business. It is true that the loan was to be utilised in acquiring land and building as also shed. But once the business is started, the fact that the loan has been obtained for acquisition of the capital asset is immaterial and the interest on the loan as also expenses incurred for obtaining loan are allowable business expenses. The expression 'interest' has been defined under section 2(28A) as under: "interest' means interest payable in an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asset. 8. This decision of the Bombay High Court was followed by the High Court in Aniline Dyestuffs Pharmaceuticals (P.) Ltd.'s case in that case, the assessee-company manufacturing dyestuffs started a new industrial undertaking for manufacture of dyes (intermediates) required for manufacture of dyestuffs, which were hither to purchased by the assessee in the market and purchased land for the factory building which was under construction and machinery which was under installation during the relevant year. The assessee claimed deduction of interest paid by it on the borrowed capital for the project. It was held that it could not be held that the assessee's project to manufacture dyes was a separate and entirely new undertaking - a tota ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peals) in the present case, there is a direct decision of the Hon'ble Bombay High Court in the case of Gwalior Rayon Silk Mfg. (Weaving) Co. Ltd. The relevant discussion on the point is to be found on page 261 onwards of the above decision. In this case before the Bombay High Court, the assessee had purchased lands for the purpose of its business. On the unpaid price of the land, interest was payable which was claimed as a deduction. The assessee had obtained bank guarantee and bank guarantee commission was also payable. Interest as well as guarantee commission were not allowed on the ground that the plantation division constituted a separate and distinct business. In appeal, the AAC held that the expenditure was for establishing a source o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (c) that it is irrelevant to consider the object with which the loan was obtained". It would be seen from the above that the Bombay High Court in noting the ratio of the decision of the Supreme Court in India Cements Ltd.'s case has clearly observed that it is irrelevant to consider the object with which the loan was obtained. The distinction, therefore, made in the present case by the Assessing Officer and the Commissioner (Appeals) that the decision of India Cements Ltd. 's case was not applicable because in that case before the Supreme Court the loan was not obtained for the acquisition of the assets, does not appear to be correct. 12. In the light of the above discussion, I hold that there is no justification for the impugned ad ..... X X X X Extracts X X X X X X X X Extracts X X X X
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