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TMI Blog1958 (3) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... by reason of the use of the capital must be used in the year of account. 2. Before we look at the authorities, it would perhaps be best to turn to the section itself, and the deduction which is permissible under section 10(2)(iii) is "in respect of capital borrowed for the purposes of the business, profession or vocation, the amount of the interest paid." Now it will be noticed that the sub-section makes no distinction between capital borrowed in order to acquire a revenue asset and capital borrowed to acquire a capital asset. All that the section requires is that the assessee must borrow the capital and the purpose of the borrowing must be for the business which is carried on by the assessee in the year of account. The capital must be borrowed for the purpose of no other business except the business which is being assessed. Now, when we look at the other sub-clauses of section 10(2), it is clear that the underlying idea of these sub-clauses is that the particular deduction claimed must be in relation to the business which is referred to in sub- section (1) of section 10, that is, the business in respect of which tax is payable by an assessee. What is suggested by Mr. J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngenious. He suggests that, if the capital is used for the purpose of acquiring a stock-in-trade or a revenue asset, then interest paid on the capital may be a permissible deduction although the revenue asset may not be used in the year of account. But, according to him, the position is different if the capital is used for the purchase of a capital asset. In the case of a purchase of a capital asset, the capital asset must be used before interest can be allowed on the borrowed capital. Here again Mr. Joshi is adding words to the section which the section does not contain. Mr. Joshi draws a distinction between capital borrowed for the purpose of acquiring a capital asset and capital borrowed for acquiring a revenue asset. There is no warrant for drawing this distinction. Unlike section 10(2)(xv) which expressly excludes an expense of a capital nature, the Legislature has made no distinction in section 10(2)(iii) between capital borrowed for a revenue and a capital purpose. An assessee is entitled to claim interest paid on borrowed capital provided it is for the purpose of the business irrespective of what may be the result of using the capital which he has borrowed. 3. Some light i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at is Vallambrosa Rubber Co. Ltd. v. Farmer [1938] 6 I.T.R. 636. There a rubber company had an estate one-seventh of which only produced rubber in the year of account and the other six-sevenths was in process of cultivation. The company claimed expenditure for superintendence of the whole estate as a permissible deduction, and the Court of Session. Scotland, considered this question and the Lord President (who ultimately became Lord Justice) in a forceful judgment points out at page 534 that the argument advanced by counsel for the Crown that nothing ever could be deducted as an expense unless that expense was purely and solely referable to a profit which was reaped within the year was a startling proposition and that proposition was only to be stated to be defeated by its own absurdity ; and the learned Lord President rightly poses the question in all these cases of deductions that "the rules framed in England", and the sections in our Act, "are only guides because the real point is what are the profits and gains of the business." Therefore, if a businessman borrows money to consolidate or improve his business and pays interest on it, can it ever be said from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this case we did consider the scheme of section 10(2), and this is what we say at page 211: "Therefore, the scheme of section 10(1) and (2) is clear. To start with there must be a business which is being carried on for the purpose of earning profits and those profits are being assessed to tax. It is in respect of that business that the assessee claims various allowances under section 10(2) and one of the allowances is depreciation, whether normal or initial." 8. Therefore, all that we emphasized was that every allowance which can be permitted to the assessee must be in relation to a business which is being carried on for the purpose of earning profits and those profits are being assessed to tax. Now the assessee in this case is not claiming any allowance in respect of any other business than the business which is being assessed to tax. Mr. Joshi put forward a contention which it is extremely difficult to accept, that the extension which was intended and for which the plant and machinery were erected could not be considered as the same business which was carried on and which was being subjected to tax. It is not suggested by anyone, nor is there any finding of fact by th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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