TMI Blog2006 (8) TMI 640X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee thereafter filed revised return on 6-8-1993 declaring a taxable income of ₹ 3,48,09,071. In the computation of income filed along with revised return, the assessee claimed additional deduction on account of ₹ 1,97,290 and ₹ 9,80,000 on account of interest under section 36(1)(iii) of the Act and up front fees, respectively. This claim was made on account of loans raised for set up of a new unit at Baddi (HP). In the revised return, a detail note was given at Serial No. 9 that the assessee has set up a new unit, for the purpose of which, the assessee incurred expenses on interest of loans and upfront fees of loan raised from financial institutions for establishing a new unit. It was admitted in the return that the new unit had not yet come into commercial production. However, the claim of the assessee was that the same is nothing but expansion of its earlier business under the same management and administration. The Assessing Officer, keeping in view, the admitted facts that the loan was raised for setting up a new unit for creating a capital asset which was yet come into production, the interest for the period prior to that could not be allowed as revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee after elaborate discussion. We do not find any error in the approach of learned Commissioner of Income-tax (Appeals). The view taken in the impugned order is not only supported by the decision referred to by the learned Commissioner of Income-tax (Appeals) but is also supported by fourteen decisions given in the paper books of the assessee, the latest in line, being the decision of Hon ble Supreme Court in the case of CIT v. Associated Fibre Rubber Industries (P.) Ltd. 236 ITR 471. As it is a case of expansion of business, interest paid on borrowed funds for installation of machinery and upfront fees were rightly treated as of revenue nature and allowed. We confirm the action of learned Commissioner of Income-tax (Appeals). [Emphasis supplied] 5. The provisions relevant for consideration on the issue are extracted below : 36. Other deductions.-(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing referred to in section 28- (i ) and (ii) ****** (iii) the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession : Provided th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as added by the Finance Act, 1986 with effect from 1-4-1974. The object of the said amendment as contained in the Finance Bill, 1986 as it appeared in [1986] 158 ITR (St.) 88 is as under : Under the existing provisions of clause (1) of that section, actual cost means the actual cost of the asset to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority. The proposed amendment seeks to clarify that any amount paid or payable as interest in connection with acquisition of an asset and relatable to a period after the asset is first put to use shall not form part and shall deemed never to have been formed part of the actual cost of the asset. 8. A perusal of Explanation 8 of section 43(1) of the Act and the object for which the same was inserted with retrospective effect shows that no interest paid or payable by the assessee in connection with the acquisition of the asset for any period after the asset is first put to use shall not form part of the actual cost of the asset. The proposition in the present case is just reverse. The natural consequences of Explanation 8 would be that in case of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being acquired, starts generating income, it cannot be said that the same is being used for the purpose of business. Once it is established that interest paid after asset is put to use is not to be included in the actual cost on asset. There would be no alternate but to hold that the interest paid before the asset was first put to use would be included in the actual cost thereof and has to be treated as capital expenditure and not revenue in nature. 11. In Oswal Spg. Wvg. Mills Ltd. s case (supra ), this Court answered the question as to whether the interest paid by the assessee on purchase of machinery should be considered as part of the cost of machinery. This Court held that the interest paid on acquisition of machinery should be treated as part of the cost of machinery, while relying upon Challapalli Sugars Ltd. s case (supra); CIT v. Tensile Steel Ltd. [1976] 104 ITR 581 (Guj.), Ballarpur Paper and Straw Board Mills Ltd. v. CIT [1979] 118 ITR 613 (Bom.) and CIT v. New Central Jute Mills [1982] 135 ITR 736 1 (Cal.). 12. While dealing with an identical issue, Calcutta High Court in JCT Ltd. v. Dy. CIT [2005] 276 ITR 115 2, decided the issue in favour of the revenue and a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
