Commissioner Of Income Tax Coimbatore v. M/S. Super Spinning Mills Ltd., Coimbatore

In the High Court of Judicature at Madras The Honourable Mr.JUSTICE R.BALASUBRAMANIANand The Honourable Mr.JUSTICE P.P.S.JANARTHANA RAJA Tax Case (Appeal) No.30 of 2004 Commissioner of Income TaxCoimbatore. .... Appellant Vs. M/s. Super Spinning Mills Ltd.,Coimbatore. .... Respondent APPEAL under Section 260A of the Income Tax Act against theorder dated 28.11.2002 made in I.T.A.No.936(Mds)/97 on the file ofthe Income Tax Appellate Tribunal Madras 'A' Bench for the assessmentyear 1993-94 against the order of the Commissioner of Income-Tax(Appeals) Coimbatore dated 25.2.1997 in IT Appeal No.257-C/96-97against the order of the Deputy Commissioner of Income-Tax, SpecialRange-II, Coimbatore dated 25.3.1996 in PANGIR No.CY2486. (Judgment of the Court was delivered by P.P.S.JANARTHANA RAJA,J) The Revenue has filed this appeal under Section 260A of theIncome Tax Act against the order dated 28.11.2002 made inI.T.A.No.936(Mds)/97 on the file of the Income Tax Appellate TribunalMadras. When the appeal came up for hearing, this Court has admittedthe same on the following substantial questions of law: "i. Whether in the facts and circumstances of thecase, the Tribunal was right in law in holding that thepower subsidy received from the electricity board shouldbe treated as capital receipt? ii. Whether in the facts and circumstances of thecase, the Tribunal was right in law in holding that the https://hcservices.ecourts.gov.in/hcservices/ "front and fee" in respect of loan borrowed for expansionof a unit is to be deducted as revenue expenditure?" 2. The brief facts arising out of the above tax case are ashere under: The assessee filed a return of income on 31.12.1993 and revisedreturn on 30.12.1994 both admitting 'Nil' income. The assessingofficer issued notice under Section 143(2) of the Income Tax Act onthe assessee and later, assessment was completed by the AssessingOfficer determining the total income at Rs.3,33,836/-. He treatedthe power subsidy received from the Government as a revenue receiptand also disallowed the expenditure of "front end fee" as capitalexpenditure. Aggrieved by the order of the assessing officer, theassessee filed an appeal before the Commissioner of Income Tax(Appeals). The Commissioner of Income Tax (Appeals) allowed theappeal and set aside the order of the assessing officer. Aggrievedby the same, the Revenue filed an appeal before the Income TaxAppellate Tribunal. The Tribunal dismissed the appeal filed by theRevenue and confirmed the order of the C.I.T.(A). 3.Inspite of notice served on the respondent, there is norepresentation on behalf of the respondent. 4. In respect of Question No.1, Learned standing counselappearing for the Revenue submitted that the issue is covered by ajudgment of the Supreme Court reported in 251 ITR 427 (C.I.T. Vs.Rajaram Maize Products). Following the same, we answer Question No.1in favour of the Revenue and against the assessee. 5. In respect of question No.2, learned standing counselsubmitted that the impugned amount was incurred for obtaining loanfor the purpose of setting up an unit and hence it is only a capitalexpenditure. He further submitted that the Tribunal erred infollowing the ratio of the Supreme Court judgment reported in 227 ITR465 in the case of Sivakami Mills, wherein the Supreme Court dealtwith guarantee commission and not with "front end fee" or loanprocessing charges. 4. In respect of Question No.1, Learned standing counselappearing for the Revenue submitted that the issue is covered by ajudgment of the Supreme Court reported in 251 ITR 427 (C.I.T. Vs.Rajaram Maize Products). Following the same, we answer Question No.1in favour of the Revenue and against the assessee. 5. In respect of question No.2, learned standing counselsubmitted that the impugned amount was incurred for obtaining loanfor the purpose of setting up an unit and hence it is only a capitalexpenditure. He further submitted that the Tribunal erred infollowing the ratio of the Supreme Court judgment reported in 227 ITR465 in the case of Sivakami Mills, wherein the Supreme Court dealtwith guarantee commission and not with "front end fee" or loanprocessing charges. 6. Heard the counsel. During the year of account the assesseeobtained sanction for a term loan of Rs.820 lakhs from IDBI. Whileavailing the above loan, the assessee incurred a sum of Rs.8.20 lakhstowards "front end fee payment" at the rate of 1% on the loan amount.Without paying the above said amount, the IDBI may not havesanctioned the loan amount for setting up the new unit at Gudalur.Here the amount is paid only for obtaining the loan and hence thesame does not bring into existence any asset on an enduring nature.If interest paid on borrowed amount could be held to be revenueexpenditure, we fail to see how the present amount incurred for obtaining loan for setting up of a new unit, could be regarded ascapital payment. It is the condition precedent for obtaining theloan and also it is the nature of processing fees for the bank torelease the loan incurred for the purpose of the business and hencethe same is only revenue expenditure. The Tribunal correctlyfollowed the principle enunciated in the judgment reported in 227 ITR465 and decided the case in favour of the assessee. We find no erroror legal infirmity in the order of the Tribunal, so as to warrantinterference. Accordingly, we answer the second question in favourof the assessee and against the Revenue. 7.With the above observation, the tax case is disposed of. Nocosts. Sd/Asst.Registrar /true copy/ Sub Asst.Registrar sl/km To 1. The Assistant Registrar, Income-tax Appellate Tribunal, Rajaji Bhavan,Besant Nagar, Chennai 600 090. Rajaji Bhavan,Besant Nagar, Chennai 600 090. 2. The Income Tax Appellate Tribunal Madras "A" Bench, Chennai. Chennai. 3. The Deputy Commissioner of Income Tax, Special Range II, Coimbatore. Coimbatore. 4. The Commissioner of Income Tax (A), Coimbatore. 5. The Commissioner of Income Tax, Coimbatore. +1cc to Mr.N.Muralikumaran Sr. Standing Counsel for Income Tax Sr46923BV (CO)km/26.10. T.C.(A) No.30 of 2004