TMI Blog1984 (12) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... ivision'. The assessee's claim for relief under section 80J of the Income-tax Act, 1961 ('the Act'), was partly allowed by the Commissioner (Appeals). Against the rejection of the balance, the assessee has raised first ground in the memorandum of appeal. However, that ground was expressly given up by the assessee at the time of hearing of the appeal before us. 2. In connection with the setting up of the unit at Chinchwad for manufacture of pumps, which are slightly different from the pumps already manufactured by the assessee, the assessee had borrowed large amounts from the Central Bank of India (CBI) and other financial institutions. In the relevant accounting year, the assessee paid Rs. 8,18,752 as interest and commitment charges. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that they did not come within the ambit of section 36(1)(iii) and as such were not allowable. The Commissioner (Appeals) then considered the question whether these deductions were allowable under section 37(1) of the Act. He held that since the main purpose was to purchase fixed capital assets like machinery, etc., the interest and commitment charges would be in the capital field and as such deduction as revenue expenditure was not allowable under section 37(1). He, accordingly, confirmed the disallowance. 5. The ground raised by the assessee in the memorandum of appeal is that the Commissioner (Appeals) had erred in confirming the disallowance of deduction of Rs. 8,18,752. 6. We may mention at the outset that the view expressed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lay are given in the prospectus. As regards sources of finance, it is mentioned that the assessee proposed to raise additional equity and obtain term loans from ICICI/LIC/CBI and foreign exchange loans from ICICI. There is also mention about raising of money from internal accruals and deposits and bank borrowings. The industrial licence has been obtained in the assessee-company's name. The voluminous evidence in the form of documents produced by the assessee indicate that this is a case of expansion of existing business by starting a new unit manufacturing different types of pumps. 8. On the above facts, the principle laid down by the Bombay High Court in Calico Dyeing Printing Works v. CIT [1958] 34 ITR 265 would apply. In that case, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on that capital merely because the use of the capital is unremunerative." The ratio of the above decision applies squarely to the facts of this case. It is not the department's case that the capital borrowed had been used for non-business purposes. It is indeed common ground that it is used for business purposes and the claim is sought to be rejected on the grounds that the capital was used to acquire capital assets and the business had not commenced in the relevant accounting year. Both these facts are irrelevant as far as application of ratio of that decision is concerned because, as already emphasised, this is not a case of a company incurring pre-commencement expenses of a new business ; this is the case of a company which is already i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decisions, we would refer to the decision of the Gujarat High Court in CIT v. Alembic Glass Industries Ltd. [1976] 103 ITR 715, wherein the entire case law on the subject, including the decision of the Supreme Court in the case of India Cements Ltd., were reviewed and the following propositions were laid down : "(1) Where a borrowing is made for the purposes of a business, the interest paid on such a borrowing becomes eligible to deduction contemplated by section 10(2)(iii) of the Act of 1922 or section 36(1)(iii) of the Act of 1961. (2) This would be so, even if the capital is invested in order to acquire a revenue asset or a capital asset, because the act of borrowing capital is distinct from the act of investment of that capital to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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