TMI Blog1986 (3) TMI 119X X X X Extracts X X X X X X X X Extracts X X X X ..... business in India. Its head office is in England and it is doing similar business in some other countries also. 4. The first ground taken by the department in this appeal states that the Commissioner (Appeals) erred in deleting the addition of the interest of Rs. 44,55,972 made by the ITO. During the year under consideration, the assessee considered certain debts due to it as of doubtful recovery. Nevertheless, he charged interest on those debts and debited those amounts to the persona accounts of the debtors. However, the corresponding credits for the interest so debited was not given to the current profit and loss account but was given to a suspense account. The case of the assessee was that the interest though charged in the books of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effect during the year prior to the date of the instructions by which it was withdrawn. The Commissioner (Appeals) observed that the earlier circular of 1952 was withdrawn only in 1978 and so it was in force during the year 1975 which is now under consideration. Following the said circular of 1952, the Commissioner (Appeals) deleted the aforesaid sum of Rs. 44,55,972. 6. Shri B. K. Bagchi, the learned standing counsel for the department, urged before us that the Commissioner (Appeals) erred in his decision. He stated that in the recent case of State Bank of Travancore [1986] I.S.V.L.R. (T) 1, the Supreme Court has affirmed the view of the Kerala High Court in State Bank of Travancore's case. In this case, the Supreme Court has held that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee should have been allowed by the Commissioner (Appeals). In this connection, he explained that this amount consisted of two components, viz., certain amounts which were taxed earlier were written off this year as irrecoverable; and certain other items which were not allowed as deduction in the earlier year have been credited to the interest account. The first item had to be allowed as bad debt as it became bad. The second item could not be taxed once again as it had already suffered tax in the earlier years because it was not allowed as a deduction. He pointed out that the Commissioner (Appeals) did not consider the issue in its proper perspective when he disposed of it summarily on the ground that he had allowed the deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court the assessee now before us was an intervener. The argument based on the Board circulars was advanced on behalf of the interveners as is clearly recorded at pages 7 and 8 of the first judgment. It is to be noted that the assessment years before the Supreme Court were 1965-66 to 1967-68. These were the years when the earlier circular of 1952 was in force as it had not yet been withdrawn by the circular of 1978. Notwithstanding the above facts and the above arguments raised, the majority judgment of the Supreme Court states as under : "The earlier circulars being executive in character cannot alter the provisions of the Act. These were in the nature of concessions and could always be prospectively withdrawn. However, on what lines t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The last ground in the departmental appeal states that the Commissioner (Appeals) erred in deleting the addition of Rs. 6,43,498 representing the cost of raising funds in London. It appears that the Reserve Bank of India laid down a condition for the non-residents who do banking business in India. That condition is that the non-resident should deposit a specified (though fluctuating) amount to the credit of the Reserve Bank of India in the Bank of England, London. That deposit did not earn any interest. However, the assessee had to spend some money in order to raise the funds to make that deposit in London. The assessee has called this expense as 'cost of raising funds'. The details of this expense are not on record, nor were they made av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ri P. T. Sanyal replied that the expense was mainly interest which was admissible under section 36(1) (iii). According to him, no element of capital expense is involved because this amount had to be paid year after year for maintaining the deposit which earned no interest. 15. We have considered the contentions of both the parties as well as the facts on record. In our opinion, the amount will become clearly admissible if it consisted of interest because section 36(1) (iii) allows such interest as deduction so long as the funds are borrowed for the purpose of business. It is immaterial whether that purpose relates to a capital item or a revenue item. However, we are not so sure about the expense other than interest. It may be incidental t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
