TMI Blog2006 (8) TMI 174X X X X Extracts X X X X X X X X Extracts X X X X ..... f 2002 is filed by the Revenue (Commissioner of Income-tax). In other words, these are two cross-appeals which arise out of one impugned order. 2. This is an appeal filed by assessee under section 260A of the Income-tax Act against an order dated March 7, 2002, passed by the Income-tax Appellate Tribunal, Indore Bench (for short hereinafter called "the Tribunal"), in I.T.A. No. 639/Ind/1994 and I. T. A. No. 495/Ind/1994 (annexure A). This appeal (I. T. Appeal No. 49 of 2002) was admitted for final hearing on the following substantial questions of law : "1. Whether the Tribunal erred in law in not allowing the deduction of expenditure incurred in the assessment year 1990-91, in the issue of debentures for raising loan for the purpose of business under section 37, instead of treating as covered under section 35D of the Act ? 2. Whether the Tribunal erred in law in not allowing the deduction of interest payment Rs. 10,99,007 against business income thereby whether further entitled to deduction under section 80M on the gross dividend income as against the net dividend income from the UTI ? 3. Whether the Tribunal erred in law in disallowing interest payment of Rs. 5,83,700 wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e., sum of Rs. 22.18 lakhs spent by the assessee be allowed to be claimed by way of deduction while computing the total income of the assessee from the business. However, the view of the Assessing Officer was that the expenditure incurred by the assessee in execution of debenture scheme squarely falls within the four corners of section 35D of the Act and hence, it can be allowed by way of deduction only in accordance with the procedure specified in section 35D but not as revenue expenditure as contended by the assessee. 8. By order (annexure C), the Assessing Officer while negativing the claim made by the assessee along with other issues held that a sum of Rs. 22.18 lakhs claimed by the assessee as revenue expenditure should be allowed as preliminary expenses defined in section 35D(2)(c)(iv) ibid and accordingly, benefit in the manner provided therein be given to the assessee. 9. The assessee felt aggrieved against this finding of the Assessing Officer, filed an appeal to the Commissioner of Income-tax (Appeals) along with the other issues decided by the Assessing Officer against the assessee and confirmed the finding by his order dated April 4, 1993, (annexure B). The as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )(iv) which is relevant for answering question No. 1 reads as under : "35D. (1) Where an assessee, being an Indian company or a person (other than a company) who is resident in India, incurs, after the 31st day of March, 1970, any expenditure specified in sub-section (2),— (i) before the commencement of his business, or (ii) after the commencement of his business, in connection with the extension of his industrial undertaking or in connection with his setting up a new industrial unit, The assessee shall, in accordance with and subject to the provisions of this section, be allowed a deduction of an amount equal to onetenth of such expenditure for each of the ten successive previous years beginning with the previous year in which the business commences or, as the case may be, the previous year in which the extension of the industrial undertaking is completed or the new industrial unit commences production or operation : Provided that where an assessee incurs after the 31st day of March, 1998, any expenditure specified in sub-section (2), the provisions of this sub-section shall have effect as if for the words 'an amount equal to one-tenth of such expenditure for each of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision for claiming deduction in respect of specified category of expenditure incurred by the assessee in their business activity, then in that event, it excludes the applicability of general provision dealing with the subject. In other words, in such eventuality what prevails is the special provision over the general provision. Section 35D being special and is applicable only to certain types of expenditure incurred by the assessee in their business activity, it will prevail over that section which applies to general category of expenditure thereby excluding its applicability. 18. We are not impressed with the submission of learned counsel for the appellant/assessee when he contended in alternative that expenditure incurred in relation to issuance of non-convertible debenture could be treated as revenue expenditure. In our view, the use of the expression "debenture" in sub-clause (iv) would include all kinds of debentures, i.e., convertible and/or non-convertible. Had the Legislature used only one specific type of debenture in sub-clause (iv) then in such eventuality it would have excluded all other kinds of debentures which are not mentioned in the clause. But such is not t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) O. D. a/c 63,00,000 10,99,007 2,95,380 51,54,110 5,83,700 15,69,175 1,14,54,110 16,82,707 18,64,555 23. All the investments made in the units as also in securities (except 9 per cent. tax bonds of Rs. 2,50,00,000) were sold by the assessee during the same assessment year at a loss of Rs. 1,13,53,000. As is clear from the details mentioned supra, the assessee had taken loan from the bank for making these investments. The assessee then claimed loss as also interest paid during the year in question by way of deduction and claimed exemption under section 10(15)(iv) so far as interest income was concerned. The assessee also claimed deduction of 60 per cent. under section 80M from gross amount of dividend income. 24. The Assessing Officer held that such investment being not part of assessee's business and hence, disallowed the claim of interest while computing the business income. The Assessing Officer then allocated the same against dividend and interest received and deducted under section 80M in accordance with procedure specified by the Supreme Court in the case of Distributors (Baroda) P. Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. It was not taken by the assessee for their regular business. In these circumstances, the provisions of section 14A would apply against the assessee in so far as the claim of interest paid on this loan transaction was concerned. However, so far as the payment of interest on overdraft account was concerned, it being an account meant for carrying on the business activity of the assessee, the interest paid against the loan taken out of this account was rightly held as an allowable claim being in the nature of business expenditure. 30. As a consequence, the authorities were justified in calculating the deductions for section 80M on the basis of the law laid down by the Supreme Court in the case of Distributors (Baroda) P. Ltd. v. Union of India [1985] 155 ITR 120 by taking into consideration the interest paid on direct borrowings, i.e., Rs. 10,99,007 and Rs. 5,83,700. No fault thus can be found in this approach. 31. Learned counsel for the appellant (assessee) cited several decisions at the Bar but having gone through the same, we find that these very authorities were cited before the Commissioner of Income-tax (Appeals) and the Tribunal and then impugned finding was rec ..... 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