COMMISSIONER OF INCOME TAX v. SOUTHERN PETROCHEMICAL INDUSTRIES CORPN. LTD
[Citation -2008-LL-0204-6]

Citation 2008-LL-0204-6
Appellant Name COMMISSIONER OF INCOME TAX
Respondent Name SOUTHERN PETROCHEMICAL INDUSTRIES CORPN. LTD.
Court HC
Relevant Act Income-tax
Date of Order 04/02/2008
Assessment Year 2000-01
Judgment View Judgment
Keyword Tags unabsorbed depreciation • industrial undertaking • business expenditure • new industrial unit • revenue expenditure • capital expenditure • gross total income • working capital • raw material
Bot Summary: The assessee, inter alia, claimed deduction of expenditure incurred on issue of debentures and collection of fixed deposits as revenue expenditure. Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the expenditure for issue of debentures and fixed deposits is a revenue expenditure 2. The issue as to the expenditure incurred for the debentures issued was decided as revenue expenditure by the apex court in the case of India Cements Limited v. CIT reported in 1966 60 ITR 52 and Addl. Is the purpose at the time the loan is negotiated to be taken into consideration or the purpose for which it is actually used... the purpose for which the new loan was required was irrelevant to the consideration of the question whether the expenditure for obtaining the loan was revenue expenditure or capital expenditure. The Supreme Court held that the act of borrowing money was incidental to the carrying on of business, the loan obtained was not an asset or an advantage of enduring nature, the expenditure was made for securing the use of money for a certain period and it was irrelevant to consider the object with which the loan was obtained and the amount spent was not in the nature of capital expenditure and was laid out or expended wholly and exclusively for the purpose of the assessee's business and was allowable as a deduction. The Bombay High Court in CIT v. Mahindra Ugine and Steel Co. Ltd. 2001 250 ITR 696 considered the allowability of stamp duty paid on debenture issue as business expenditure and held that the expenditure is revenue in nature. In the present case, on the facts, the Tribunal has found that the object of the debenture issue was to meet the working capital requirement of the assessee and the expenditure was considered to be a revenue expenditure.


JUDGMENT judgment of court was delivered by K. Raviraja Pandian J. This appeal has been filed against order of Income-tax Appellate Tribunal in I. T. A. No. 141/Mds/2004, dated October 13, 2006. relevant assessment year is 2000-01. assessee-company filed return of income for assessment year 2000-01 on November 28, 2000, declaring gross total income of Rs. 18,98,72,520 and after setting off unabsorbed depreciation from assessment year 1994-95, arrived at net taxable income of Rs. nil. assessee, inter alia, claimed deduction of expenditure incurred on issue of debentures and collection of fixed deposits as revenue expenditure. Assessing Officer disallowed same, as also depreciation on standby machinery. Aggrieved by assessment orders, assessee filed appeals before Commissioner of Income-tax (Appeals), who allowed same based on orders passed for earlier years on same issues. Revenue took matter on further appeal to Income-tax Appellate Tribunal. Income-tax Appellate Tribunal confirmed orders of Commissioner of Income-tax (Appeals). Hence, present appeal has been filed by formulating following substantial questions of law: 1. Whether, on facts and circumstances of case, Tribunal was right in holding that expenditure for issue of debentures and fixed deposits is revenue expenditure? 2. Whether, on facts and circumstances of case, Tribunal was right in holding that stand-by assets which are not put to use during relevant year are entitled to depreciation? We heard standing counsel appearing for Revenue. issue as to expenditure incurred for debentures issued was decided as revenue expenditure by apex court in case of India Cements Limited v. CIT reported in [1966] 60 ITR 52 and Addl. CIT v. Akkamamba Textiles Limited reported in [1997] 227 ITR 464 (SC). When issue has thus been covered by decisions of Supreme Court, Tribunal is correct in confirming order of Commissioner (Appeals), who regarded that expenditure incurred in debentures issued is revenue expenditure. As far as expenses relating to obtaining fixed deposits are concerned, issue was decided as revenue expenditure by Division Bench of this court in CIT v. Southern Petrochemical Industries Corporation Ltd. reported in [2007] 292 ITR 362, wherein this court held as follows (page 367): ... For deciding issue that expenses relating to obtaining fixed deposits are closely linked with business requirement of assessee, it is apposite to have cursory look on decided case law on this point. In India Cements Limited v. CIT [1966] 60 ITR 52 (SC), while deciding nature of amount spent towards stamps, registration fees, lawyer s fees, etc., for obtaining loan, Supreme Court observed as follows (page 63): loan may be intended to be used for purchase of raw material when it is negotiated, but company may, after raising loan, change its mind and spend it on securing capital assets. Is purpose at time loan is negotiated to be taken into consideration or purpose for which it is actually used?... purpose for which new loan was required was irrelevant to consideration of question whether expenditure for obtaining loan was revenue expenditure or capital expenditure. To summarise this part of case, we are of opinion that: (a) loan obtained is not asset or advantage of enduring nature; (b) that expenditure was made for securing use of money for certain period; and (c) that it is irrelevant to consider object with which loan was obtained. Observing so, Supreme Court held that act of borrowing money was incidental to carrying on of business, loan obtained was not asset or advantage of enduring nature, expenditure was made for securing use of money for certain period and it was irrelevant to consider object with which loan was obtained and, therefore, amount spent was not in nature of capital expenditure and was laid out or expended wholly and exclusively for purpose of assessee's business and was, therefore, allowable as deduction. apex court also held that obtaining capital by issue of shares is different from obtaining loan by debentures. Bombay High Court in CIT v. Mahindra Ugine and Steel Co. Ltd. [2001] 250 ITR 696 considered allowability of stamp duty paid on debenture issue as business expenditure and held that expenditure is revenue in nature. In that case, attack was made by Revenue on strength of section 35D of Act which deals with amortisation of certain preliminary expenses, and Bombay High Court held that (page 698): Section 35D deals with amortisation of certain preliminary expenses. Under section 35D(1)(ii), it is laid down that after commencement of business any expenditure as described in section 35D(2), which is incurred in connection with extension of industrial undertaking or with regard to setting up new industrial unit then assessee shall be allowed deduction at amount equal to one-tenth of such expenditure for each of ten successive previous years beginning with previous year in which business commences or previous year in which expansion of industrial undertaking is completed, etc. In present case, on facts, Tribunal has found that object of debenture issue was to meet working capital requirement of assessee and, therefore, expenditure was considered to be revenue expenditure. In CIT v. Investment Trust of India Ltd. [2003] 264 ITR 506 this court held that expenditure on advertisements in newspapers inviting fixed deposits from public is allowable in words (headnote): In view of provisions contained in section 58A of Companies Act, 1956, assessee-company had to advertise notice calling for deposits and if there was any breach, assessee was liable to be proceeded against under relevant provisions of 1956 Act. Section 37(3A) was introduced to curb extravagant and socially wasteful expenditure on advertisement at cost of exchequer. assessee had incurred expenditure on advertisements for collecting fixed deposits and advertisements were statutory advertisements and, therefore, provisions of section 37(3A) read with section 37(3B) were not applicable to said expenditure. Considering ratio laid down in abovesaid decisions, we are of view that when Tribunal has recorded finding that expenses relating to obtaining fixed deposits are closely linked with business requirement of assessee, such expenses are allowable expenses. We, therefore, hold that Tribunal was right in holding that expenses for obtaining fixed deposits from public is revenue in nature. Accordingly, we answer second question in affirmative and against Revenue. In respect of second question of law, whether stand-by assets are eligible for depreciation, Division Bench of this court in case of CIT v. Southern Petrochemical Industries Corporation Ltd. reported in [2007] 292 ITR 362, after referring judgment of Supreme Court in case of Liquidators of Pursa Ltd. v. CIT reported in [1954] 25 ITR 265, judgments of Bombay High Court in case of CIT v. Viswanath Bhaskar Sathe reported in [1937] 5 ITR 621 and of this court in case of CIT v. Vayithri Plantations Ltd. reported in [1981] 128 ITR 675, has held that machinery could be used for purposes of business so long as it is kept ready for such user. Any forced idleness of machinery cannot disentitle assessee from getting benefit of allowance. It was further held that even in respect of stand-by assets, which are kept ready for use, during relevant assessment year are entitled to depreciation. Hence, second question of law framed by Revenue is already decided against Revenue. For foregoing reasons, appeal is dismissed. *** COMMISSIONER OF INCOME TAX v. SOUTHERN PETROCHEMICAL INDUSTRIES CORPN. LTD.
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