TMI Blog1978 (8) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... rned from the Central Bank of India Ltd. ? " The first question appears to be covered by a decision of this court in CIT v. Empire Jute Company Ltd. [1974] 97 ITR 581 (Cal). Following the same, we answer the said question in the negative and in favour of the revenue. The facts relating to the other question as has been found and/or admitted in the proceedings are shortly as follows : The assessee, at the material time, was setting up a heavy chemical plant at Varanasi and in the relevant assessment year, the said plant was under erection. Earlier, in or about 1955, the assessee had successfully negotiated with the Government of Uttar Pradesh and had obtained a loan of Rs. 1.45 crores for the purpose of setting up the said plant. Amounts received under the said loan had been kept in deposit with the Central Bank of India pursuant to the terms thereof till transfer or utilization thereof for the stipulated purpose. During the year in question, the assessee earned a sum of Rs. 1,75,471 as interest from the amount received under this loan and kept in deposit with the Central Bank of India Ltd. In the same year the assessee paid to the Government of Uttar Pradesh a sum of Rs. 9, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e us that facts admitted in the instant case were, inter alia, that the money was borrowed by the assessee for a new business unit in the process of construction and erection. Interest paid by the assessee to the Government of Uttar Pradesh on the money borrowed, therefore, fell into the category of expenditure incurred before the commencement of production in the said new unit. Mr. Pal submitted that, on the principles of accountancy, both the money borrowed and the expenditure incurred should be capitalised and added to the cost of the fixed asset. This was the law as laid down by the Supreme Court in the case of Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167. The facts in that case were that the assessee, a public limited company, went into production of sugar on the 22nd January, 1958. In the assessment year 1959-60, the corresponding accounting year ending on the 30th June, 1958, the assessee had paid interest of over Rs. 2 lakhs to the Industrial Finance Corporation of India on moneys borrowed for installation of machinery and plant calculated up to the 22nd January, 1958. The assessee contended that such interest should be treated as part of the cost of the machinery and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bajoria, learned counsel for the assessee, submitted on the other hand the alternative contention of the assessee, namely, that the interest earned from the amount deposited with the Central Bank of India was the assessee's income from other sources and in order to earn such income the assessee had incurred expenditure being interest paid to the Government of Uttar Pradesh and, therefore, the said expenditure should be allowed against the income earned and the loss ascertained should be set off against the income of the assessee arising from other heads. In support of his contention, Mr. Bajoria cited the following decisions : (a) CIT v. Bihar Spinning and Weaving Mills Ltd. (1953] 24 ITR 108 (Cal). The assessee in this case was in the process of setting up its spinning and weaving mills and had not commenced business though it had some income by way of interest. Being assessed under s. 12 of the Act of 1922, the assessee claimed deduction of a number of items of expenditure which were disallowed by the revenue authorities. On appeal, the Tribunal allowed deduction of Rs. 6,000 on estimate. On a reference, it was held by this court that the only deduction which the assessee coul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eon would be held by the bank for the benefit of the assessee who would be liable to pay interest at an. agreed rate on the purchase price of the said shares from the stipulated date of delivery till such delivery was actually obtained. If the assessee failed to take delivery of the shares then at the end of three years from the stipulated date the bank would be at liberty to sell the shares undelivered till then and to hold the assessee liable for the difference. The assessee purchased a large number of shares by borrowing over Rs. 44 lakhs from the bank and in the assessment year 1953-54, the previous year ending 30th September, 1952, paid a sum of Rs. 2,04,744 as interest while earning a dividend of only Rs. 95,654. The Supreme Court found that : (a) A genuine and bona fide contract had been entered into between the parties pursuant whereto the assessee had raised the loan and paid the interest thereon. (b) By such acquisition the dividends, rights, bonus, etc., in respect of the said shares came to be held for the benefit of the assessee. (c) Without the loan, the assessee would not have been entitled to the dividend. The Supreme Court held that there was a direct nexus ..... X X X X Extracts X X X X X X X X Extracts X X X X
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