TMI Blog2015 (6) TMI 513X X X X Extracts X X X X X X X X Extracts X X X X ..... ards, to become a capital cost. This is incomprehensible, i.e., without any change in the underlying facts and circumstances of the case, so that shares continued to be a capital asset or an investment of the assessee. Merely for the reason that from a particular year the dividend income on shares, which is the holding income arising thereon, and against which the interest, as a period expense, would stand to be allowed, is rendered tax-exempt, would not alter its character from revenue to capital. It is in fact preposterous to state so. The same has thus rightly been considered as by the Revenue as an attempt to obviate or circumvent section 14A, by claiming the interest expenses as by the backdoor as it were - Decided against assessee. Deeming of income qua unproved credits by way of business liabilities u/s. 41(1) - Held that:- The accounting entries or the treatment that the assessee accords to an asset or liability in its books is not determinative of the matter. Again, the presumption would only be of the same representing the true state of affairs, but the inordinate delay in discharging the same raises considerable and valid doubt as to the existence of those liabilities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the assessment year (A.Y.) 2007-08 vide order dated 04.12.2009. 2. The short question arising qua the first issue agitated per the instant appeal is the maintainability or otherwise in law of the interest on borrowed capital invested in shares. The said shares, acquired by the assessee-company during the financial years (fy) 1980- 81 (or even prior thereto) up to 1992-93, were sold during the relevant previous year, yielding capital gains. The assessee claimed the interest cost from f.y. 1997-98 onwards up to the current year the year of transfer, indexing it for the inflation as obtaining from year to year, as part of the cost of acquisition and/or improvement, in the computation of income by way of capital gains, chargeable u/s.45. The interest for the period prior to f.y. 1997-98 was not claimed as the same was admittedly claimed and allowed as revenue expenditure in computing the business income u/s. 28, i.e., under the head income from business or profession or as income from other sources u/s. 56. The Revenue disallowing the same, the matter has travelled to the Tribunal at the instance of the assessee. 3. We have heard the parties, and perused the material on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set in the instant case as well. In India Cements Ltd. vs. CIT [1966] 60 ITR 52 (SC) , it was clarified by the apex court that a loan cannot itself be treated as an asset or an advantage for the enduring benefit for the business of the assessee. The expenditure on the raising of the loan, which was sought to capitalized as a part of the cost of the asset by the Revenue, stood disapproved by the apex court, holding it to be a revenue expenditure. Again, it was explained by the apex court in CIT vs. Tata Iron Steel Co. Ltd. [1998] 231 ITR 285 (SC), that the payment or non-payment, as the case may be, of a loan will not alter the cost of asset, which gets crystallized on the acquisition itself. That is, the financial obligation/s attached to an asset would not have a bearing on its cost of acquisition. Applying the said decision, the tribunal in the case of LML Ltd. v. Jt. CIT [2014] 33 ITR (Trib) 269 (Mum), discountenanced the insistence by the Department to increase or decrease, as the case may be, the value of the imported raw material on the basis of the corresponding increase or decrease in the purchase liability on account of fluctuation in the exchange rate. This was as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a part of the holding cost, where not attributable to the investment or capital asset inas- much as it does not contribute to either its acquisition or improvement. In fact, even for the period prior to acquisition, the borrowing cost would form part of the cost of the capital asset only where it contributes to its acquisition or its improvement, i.e., where it is toward the same, as where the asset is under construction, entailing time and, thus, the time cost of the funds deployed thereon. The interest cost under such circumstances represents an essential ingredient toward acquiring the asset. The matter stands explained by the apex court in the case of Challapalli Sugars Ltd. (supra) as well as Tuticorin Alkali Chemicals Fertilizers Ltd. vs. CIT [1997] 227 ITR 172 (SC) . Again, to bring an expense within the cost of its improvement, the expenditure has to be by way of a (physical) addition or alteration, adding value to the capital asset. Admittedly, no such improvement has taken place to the shares, which continue to be held as such, i.e., as acquired. This is again part of the settled law, for which we may refer to the decision in the case of Industrial Credits Develop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 981, completed during the f.y. 1992-93. The interest cost, which is a time cost, and thus has only nexus with the time for which the relevant asset is held or, rather, for which the corresponding loan outstands (and to the extent it does), has no bearing on the process of acquisition, which stands completed much earlier. Further, the said decisions would thus have no bearing on a decision. Further, we are also unable to see as to how the decision in the case of H.G. Craig Harvey vs. CIT [2000] 244 ITR 578 (Mad), relied upon, would be of assistance to the assessee. In the facts of that case, the assessee became the owner of the shares in the amalgamated company/s on the basis of the shares held in the amalgamating company/s, the cost of which would thus obtain (section 49(2) of the Act). The assessee, however, substituted the cost of acquisition with their fair market value as on 01.01.1964, an option available to it under the Act. The same being available to a shareholder of the amalgamating company, it was explained by the hon ble court, would not operate to take away the said right from the shareholder of the amalgamated company/s, as the assessee. However, having substituted the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . By statutory fiction, income which can in no sense be said to have accrued, may be considered as accruing. Similarly, the fiction may relate to the place, the person or the year of taxability. The deeming in the case of section 41(1)(a), applicable in the instant case, is qua the benefit by way of cessation or remission of a trade liability in respect of an expenses of business or profession, as the income of business or profession for the year of such cessation or remission. Our second observation is that the cessation or remission of liability is a matter of fact, and which would therefore require being proved. The onus to establish that the conditions of taxability stand satisfied is always on the Revenue. In the present case, the Revenue states of the liabilities continuing to outstand in the assessee s books from 3 to 25 years. Surely, the same raises considerable doubts as to the existence of the liability/s. True, they stand not written back and continue to outstand in the assessee s books, but that is precisely the reason for the same being questioned by the Revenue, or entertaining doubts about the same. The doubt can by no means be considered as not valid, being in acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he hon ble high court in the case of Bhogilal Ramjibhai Atara (supra) that the law is not clueless in this regard; the said decision having been rendered without considering the decision by the said court in Hides Leather Products Pvt. Ltd. [1975] 101 ITR 61 (Guj) It needs to be appreciated that when the knowledge of the facts is in the possession of a particular person, it is he alone who can, and whom the law contemplates to exhibit it, in the absence of which an adverse inference, as applicable under the circumstances, shall obtain. We have also perused the case law cited by the assessee. The matter is not virgin, and stands considered by the hon ble high courts, as in the case of Kesoram Industries Cotton Mills Ltd. vs. CIT [1992] 196 ITR 845 (Cal) at length, as well as by the tribunal in a number of cases. We have already clarified that the existence or otherwise of a liability as on a particular date, which is relevant, is a finding of fact, with the law following as a matter of course. Toward the same, we rely on the decisions in the case of Modern Farm Services (supra); Kesoram Industries Cotton Mills Ltd. (supra); CIT vs. Agarpara Ltd. [1986] 158 ITR 78 (Cal); as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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