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TMI Blog1974 (9) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... ment year 1968-69), the Income-tax Officer allowed depreciation on the full cost of the new machinery and plant as claimed by the assessee. But regarding development rebate, he noted that the actual cost of the plant, according to the assessee's claim, included a sum of Rs. 32,65,605 as interest on loans and other charges for the project up to November 15, 1967. We are not concerned with the rest of the items claimed. This amount was rejected by the officer as not forming part of the "actual cost" for the purpose of development rebate. Similarly, in respect of a rectifier plant forming part of plant and machinery the book-cost for installation was Rs. 25,99,861. This included proportionate interest charges on loans to the extent of Rs. 4,70,740. The Income-tax Officer disallowed this amount as not forming part of the " actual cost " to the assessee. On appeal, the Appellate Assistant Commissioner concurred in rejecting the claim for interest under these two heads. On further appeal, the Tribunal held that the assessee's claim for inclusion of interest as part of the actual cost to the assessee for the purpose of development rebate was valid, and upheld the same. The assessee's appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the same emphatic sense in rule 3 in respect of actual wages, actual expenditure and actual loss. I do not read actual cost to mean anything more than cost accurately ascertained. But it is said that the words 'to the person' in the phrase 'actual cost to the person' plainly indicate that the section is intending to confine the relief to an aggregate equal to the sum of money which the person has defrayed out of his own resources, the cost of the burden which has ultimately fallen upon him. I confess I do not think that this is the natural meaning of the words. What a man pays for construction or for the purchase of the work seems to me to be the cost to him ; and that whether someone has given him the money to construct or purchase for himself ; or before the event has promised to give him the money after he has paid for the work ; or after the event has promised or given the money which recoups him what he has spent." The observations of Lord Atkin are found quoted in most of the judgments on this part of the law. In Commissioner of Income-tax v. Poona Electric Supply Co. Ltd., a Division Bench of the Bombay High Court (Kania and Chagla JJ.) had to consider the question w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for getting various priorities and permits for scarce material, etc., were liable to be included in the "actual cost" of the depreciable assets to the assessee, and, therefore, such portion of the remuneration should be included in the cost of the depreciable assets. It was further observed that the services rendered by the owner for the acquisition and to enable the assessee to complete a modern cinema theatre could not be treated as connected with the acquisition of the depreciable assets. The Calcutta High Court in Commissioner of Income-tax v. Standard Vacuum Refining Co. of India Ltd. had to consider whether interest on monies borrowed on debentures and utilised along with the other money by the assessee for setting up a refinery which started work in September, 1954, could be reckoned as "actual cost" to the assessee for the purpose of section 10(2)(vi), 10(2)(vi)(a), (b) and 10(5) of the Indian Income-tax Act, 1922. After an elaborate survey of the case law, it was observed : "It is argued on behalf of the revenue that interest on paid up capital raised for the purpose of erecting a plant will be included in cost by an accountant according to the principles of accounta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not legislated for any particular trade, business or commerce. It is a general legislation applicable to all those who get caught in its net. That apart, 'actual cost' does not appear to be a technical business, trade or commercial term used as such and is known and understood in the way in which it is now sought to mean. The above-said extract does not make any claim of that sort. Furthermore, in order that an alleged trade, business or commercial use of a term shall prevail, it must appear that such commercial meaning is the result of established usage in business, trade or commerce and that, at the time of the passage of the Act, such usage was definite, uniform and general and not particular, local or personal. No such case, in our view, is made out in this case. Moreover, we feel that the interpretation we have placed on the said term is more agreeable to the object and intention of the legislature." It was pointed out that wherever the legislature wanted interest accrued to be reckoned it had expressly provided as such in the 1961 Act, as in section 24. Earlier, the Division Bench had expressed thus : "We do not find any valid and compelling reason to hold that where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red to follow the Calcutta view. Attention was called to the ruling of a Division Bench of this court in Commissioner of Income-tax v. Cochin Electric Company Ltd . That was concerned with the only question whether the assessee, an electric supply company, was entitled to the allowance of depreciation in respect of that portion of the service line towards the construction of which the consumer had contributed amounts. It was held that it was. In so holding, this court referred to the judgment of Lord Atkin in Birmingham Corporation's case. This court's decision does not touch the particular aspect that we have to consider in this case. We prefer the view taken by the Calcutta and Delhi High Courts. We are of the opinion that interest paid on borrowed capital, till the building, plant or machinery is erected or constructed, is part of the actual cost to the assessee within the meaning of section 33 read with section 43 of the Income-tax Act, 1961. This seems to us to be in accordance with both popular and commercial conceptions. Once it is recognised that a building, plant or machinery can be constructed or erected with borrowed capital, if the question be put : "How much did it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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