Commissioner Of Income-Tax Chennai v. M/S. Southern Petrochemical Industries Corpn Ltd., 88 (Old

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 04.02.2008 CORAM THE HONOURABLE Mr.Justice K.RAVIRAJA PANDIANANDTHE HONOURABLE Mrs.Justice CHITRA VENKATARAMAN Tax Case (Appeal) No.42 of 2008 Commissioner of Income-TaxChennai.... Appellant Vs. M/s. Southern PetrochemicalIndustries Corpn Ltd.,88 (Old No.97), Mount RoadChennai – 600 032.... Respondent TAX CASE (APPEAL) under Section 260-A of the Income Tax Act againstthe order of the Income Tax Appellate Tribunal, Madras 'C' Bench dated13.10.2006 made in I.T.A.No.141/Mds/2004 against the order of theCommissioner of Income Tax (Appeals) Chennai dated 31.10.2003 and madein ITA.No.99/2003-2004 and PAN/GI.No.AAACS.4668-K year of Assessment2000-2001. Against the order of Deputy Commissioner of Income TaxCompany circle VI (3) Chennai - 34 GIR.No./PAN.SO-195/AAACS 4868KAssessment year 2000-01. For Appellant : Mr. J. Naresh Kumar Standing Counsel for Income Tax JUDGMENT (Judgment of the Court was delivered by K.RAVIRAJA PANDIAN, J This appeal has been filed against the order of the Income TaxAppellate Tribunal in I.T.A.No.141/Mds/2004, dated 13.10.2006. Therelevant assessment year is 2000-01. 2. The assessee-Company filed return of income for the assessmentyear 2000-2001 on 28.11.2000 declaring a gross total income ofRs.18,98,72,520 and after setting off an unabsorbed depreciation fromthe assessment year 1994-1995, arrived at a net taxable income of https://hcservices.ecourts.gov.in/hcservices/ Rs.Nil. The assessee inter alia claimed deduction of expenditureincurred on issue of debentures and collection of fixed deposits asrevenue expenditure. The Assessing Officer disallowed the same, as alsothe depreciation on standby machinery. Aggrieved by the assessmentorders, the assessee filed appeals before the Commissioner of Income Tax(Appeals), who allowed the same based on the orders passed for theearlier years on the same issues. The Revenue took the matter onfurther appeal to the Income Tax Appellate Tribunal. The Income TaxAppellate Tribunal confirmed the orders of the Commissioner of IncomeTax (Appeals). Hence, the present appeal has been filed by formulatingthe following substantial questions of law:- " 1. Whether, in the facts and circumstances of the case, theTribunal was right in holding that the expenditure for issue ofdebentures and fixed deposits is a revenue expenditure ? 2. Whether, in the facts and circumstances of the case, theTribunal was right in holding that standby assets which are notput to use during the relevant year are entitled todepreciation ?" 3. We heard the Standing Counsel appearing for the revenue. 4. The issue as to the expenditure incurred for the debenturesissued was decided as revenue expenditure by the Apex Court in the caseof INDIA CEMENTS LIMITED VS. COMMISSIONER OF INCOME-TAX reported in(1966) 60 ITR 52 and ADDITIONAL COMMISSIONER OF INCOME-TAX VS. AKKAMAMBATEXTILES LIMITED reported in (1997) 227 ITR 464. 5. When the issue has thus been covered by the decisions of theSupreme Court, the Tribunal is correct in confirming the order of theCommissioner, who regarded that the expenditure incurred in thedebentures issued is a revenue expenditure. 6. As far as the expenses relating to obtaining fixed deposit isconcerned, the issue was decided as revenue expenditure by the DivisionBench of this Court in COMMISSIONER OF INCOME TAX VS. SOUTHERNPETROCHEMICAL INDUSTRIES CORPORATION LTD., reported in 292 ITR 362,wherein this Court held as follows:- 5. When the issue has thus been covered by the decisions of theSupreme Court, the Tribunal is correct in confirming the order of theCommissioner, who regarded that the expenditure incurred in thedebentures issued is a revenue expenditure. 6. As far as the expenses relating to obtaining fixed deposit isconcerned, the issue was decided as revenue expenditure by the DivisionBench of this Court in COMMISSIONER OF INCOME TAX VS. SOUTHERNPETROCHEMICAL INDUSTRIES CORPORATION LTD., reported in 292 ITR 362,wherein this Court held as follows:- " .... For deciding the issue that the expenses relatingto obtaining fixed deposits are closely linked with thebusiness requirement of the assessee, it is apposite to have acursory look on the decided case-laws on this point. InIndia Cements Ltd. v. C.I.T. (1966) 60 ITR 52 (SC), whiledeciding the nature of the amount spent towards stamps,registration fees, lawyer's fees, etc., for obtaining loan,the Supreme Court observed as follows (page 63):"A loan may be intended to be used for the purchaseof raw material when it is negotiated, but the companymay, after raising the loan, change its mind and spendit on securing capital assets. Is the purpose at the https://hcservices.ecourts.gov.in/hcservices/ time the loan is negotiated to be taken intoconsideration or the purpose for which it is actuallyused? ..... the purpose for which the new loan wasrequired was irrelevant to the consideration of thequestion whether the expenditure for obtaining the loanwas revenue expenditure or capital expenditure. To summarise this part of the case, we are of theopinion that: (a) the loan obtained is not an asset oradvantage of an enduring nature; (b) that theexpenditure was made for securing the use of money for acertain period; and (c) that it is irrelevant toconsider the object with which the loan was obtained." Observing so, the Supreme Court held that the act of borrowingmoney was incidental to the carrying on of business, the loanobtained was not an asset or an advantage of enduring nature, theexpenditure was made for securing the use of money for a certainperiod and it was irrelevant to consider the object with which theloan was obtained and therefore, the amount spent was not in thenature of capital expenditure and was laid out or expended whollyand exclusively for the purpose of the assessee's business and wastherefore allowable as a deduction. The Apex Court also held thatobtaining capital by issue of shares is different from obtainingloan by debentures. The Bombay High Court in C.I.T. v. Mahindra Ugine and SteelCo. Ltd. ((2001) 250 ITR 696) considered the allowability of stampduty paid on debenture issue as business expenditure and held thatthe expenditure is revenue in nature. In that case, attack wasmade by the Revenue on the strength of section 35D of the Actwhich deals with amortisation of certain preliminary expenses, andthe Bombay High Court held that (page 698): "Section 35D deals with amortisation of certainpreliminary expenses. Under section 35D(1)(ii), it is laiddown that after the commencement of the business anyexpenditure as described in section 35D(2), which is incurredin connection with the extension of the industrial undertakingor with regard to setting up a new industrial unit then theassessee shall be allowed a deduction at an amount equal toone-tenth of such expenditure for each of the ten successiveprevious years beginning with the previous year in which thebusiness commences or the previous year in which expansion ofthe industrial undertaking is completed, etc. In the presentcase, on the facts, the Tribunal has found that the object ofthe debenture issue was to meet the working capitalrequirement of the assessee and, therefore, the expenditurewas considered to be a revenue expenditure." In C.I.T. v. Investment Trust of India Ltd. ((2003) 264 ITR506)) this Court held that the expenditure on advertisements innewspapers inviting fixed deposits from the public is allowable inthe words (headnote): "In view of the provisions contained in section 58A ofthe Companies Act, 1956, the assessee company had to advertisethe notice calling for deposits and if there was any breach,the assessee was liable to be proceeded against under therelevant provisions of the 1956 Act. Section 37(3A) wasintroduced to curb extravagant and socially wastefulexpenditure on advertisement at the cost of the exchequer.The assessee had incurred the expenditure on advertisementsfor collecting fixed deposits and the advertisements werestatutory advertisements and therefore, the provisions ofsection 37(3A) read with section 37(3B) were not applicable tothe said expenditure." Considering the ratio laid down in the above said decisions,we are of the view that when the Tribunal has recorded a findingthat the expenses relating to obtaining fixed deposits are closelylinked with the business requirement of the assessee, such expensesare allowable expenses. We therefore hold that the Tribunal wasright in holding that the expenses for obtaining fixed depositsfrom the public is revenue in nature. Accordingly, we answer thesecond question in the affirmative and against the Revenue. ...." 7. In respect of the second question of law, whether the standbyassets are eligible for depreciation, the Division Bench of this Courtin the case of COMMISSIONER OF INCOME-TAX VS. SOUTHERN PETROCHEMICALINDUSTRIES CORPORATION LIMITED reported in (2007) 292 ITR 362, afterreferring the judgment of the Supreme Court in the case of LIQLUIDATORSOF PURSA LIMITED VS. CIT reported in (1954) 25 ITR 265, judgments ofBombay High Court in the case of COMMISSIONER OF INCOME-TAX VS.VISWANATH BHASKAR SATHE reported in (1937) 5 ITR 621 and of this Courtin the case of COMMISSIONER OF INCOME-TAX VS. VAYITHRI PLANTATIONSLIMITED reported in (1981) 128 ITR 675, has held that the machinerycould be used for the purposes of of the business so long as it is keptready for such user. Any 'forced idleness' of the machinery cannotdisentitle the assesses from getting the benefit of the allowance. Itwas further held that even in respect of standby assets, which are keptready for user, during the relevant assessment year are entitled todepreciation. Hence, the second question of law framed by the revenueis already decided against the Revenue. 8. For the fore-going reasons, the appeal is dismissed. Sd/Asst.Registrar /true copy/ kb/usk Sub Asst.Registrar To 1. The Income-tax Appellate Tribunal, Chennai Chennai 2. The Deputy Commissioner of Income-tax Company Cicle VI(3), Chennai – 34 Company Cicle VI(3), Chennai – 34 3. The Commissione of Income-tax (Appeals) V, Chennai – 34. Chennai – 34. 4. The Assistant Registrar, Income-Tax Appellate Tribunal III Floor, Rajaji Bhavan, III Floor, Besant Nagar, Chennai - 90. Income-Tax Appellate Tribunal III Floor, Rajaji Bhavan, III Floor, Besant Nagar, Chennai - 90. 1 cc To Mr.Pushya Sitaraman, Standing Counsel for I.T.Cases, SR.5003. T.C.No.42 of 2008 AKR(CO)RVL 19.02.2008