TMI Blog1993 (7) TMI 64X X X X Extracts X X X X X X X X Extracts X X X X ..... unders. In May, 1971, the company offered its shares for subscription by the public, which were heavily over subscribed. The money so received was much in excess of the assessee's immediate business needs. Accordingly, the surplus money was deposited with banks on short-term deposits whereby Rs. 3,08,478 was received as interest. In addition to this, the assessee also deposited money with the supplier of steel and those deposits earned interest Of Rs. 9,536. Thus the aggregate of interest earned by the assessee amounted to Rs. 3,18,014. As required under the provisions of the Act, the assessee filed its return on October 9, 1972, declaring its income as nil for the assessment year in question. During the course of assessment, it transpired that the aforesaid interest has been adjusted by the assessee against the expenditure on capital work-in-progress. Before completion of the assessment, on August 14, 1973, the assessee filed a revised return showing a loss of Rs. 1,70,833. This figure was worked out by showing Rs. 3,18,014 as income and Rs. 4,88,847 as expenditure. The Income-tax Officer rejected the plea of expenditure on the ground that the company had not yet commenced busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Madras Fertilisers Ltd. [1980] 122 ITR 139 (Mad). Shri Pawan Kumar, learned counsel appearing for the assessee, has strenuously argued that the view taken by the Tribunal is in conformity with the decision of this court in the case of CIT v. Bokaro Steel Ltd. (No. 1) [1988] 170 ITR 522 and, as such, the same should be affirmed. According to him, in a case like the present one, the brochure (Study on Expenditure During Construction Period) issued by the Institute of Chartered Accountants of India and published in December, 1970, should be accepted as laying down the guiding principle which, while dealing with the "Income during construction "or production period", has said that "similarly, interest income earned during construction period may be set off against interest expenses incurred during this period". After hearing learned counsel for the parties and perusing the order of the Tribunal, I am of the opinion that the legal issues involved in the present case have been approached by the Tribunal more through accounting and commercial practice based on practical convenience than by adhering to the legal principles emanating from the provisions of the Act. The discussions ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hargeable under any other head of income specified in section 14 of the Act. If that be so, the assessee will be entitled to deduction from this income only if the conditions laid down under section 57(iii) of the Act are satisfied which reads as under: "57. The income chargeable under the head 'Income from other source' shall be computed after making the following deductions, namely:- . . . . (iii) any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income." The language of the aforementioned section is clear, explicit and clinches the issue involved. On a reading of section 4 with section 57(iii) of the Act, there is no escape from taking the view that expenditure is allowable, as deduction out of an "income from other sources" only if it is found that, in fact, (i) it has been expended wholly and exclusively for the purpose of making or earning such income ; and (ii) it is not in the nature of capital expenditure. In the present case, apart from the fact that the assessee has Paid certain interest on the borrowings obtained for the purpose of construction, nothing h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missions of Mr. Pawan Kumar that, since the brochure of the Institute of Chartered Accountants, referred to above, provides that the interest income earned during the construction period may be set off against expenses incurred during the said period, the same principle should be applied for computing the taxable income, needs to be considered now. By referring to Challapalli Sugars Ltd.'s case [1975] 98 ITR 167 (SC), at page 173, he has submitted that even the Supreme. Court has taken aid from the guidelines laid down in the said brochure for ascertaining the true import and meaning of the word "actual cost" for the, purpose of section 10 of the Indian Income-tax Act, 1922. In my opinion, this submission has got to be rejected for two reasons. Firstly, the Supreme Court, in the case of Challapalli Sugars Ltd. [1975] 98 ITR 167, has taken aid from the various expert reports and opinions to ascertain the meaning of the word "actual cost", since the said phrase has not been defined in the Act. According to their Lordships, keeping in view the settled canons of interpretation, the word is required to be, "construed in the sense which no commercial man would misunderstand". This is not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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