Ita/153/2016 Of M/S Thukral Regal Shoes v. Commissioner Of Income Tax And Anr

I N THE HI GH COURT OF PUNJAB AND HARYANA AT CHANDI GARH I . T. A. No. 153 of 2016 ( O&M)DATE OF DECI SI ON: 21. 07. 2016 M/ s Thukr al Regal Shoes ver sus …. . Appel l ant s Commi ssi oner of I ncome Tax- I , Chandi gar h and anot her . . . . . Respondent s CORAM: - HON’ BLE MR. JUSTI CE S. J. VAZI FDAR, ACTI NG CHI EF JUSTI CE HON’ BLE MR. JUSTI CE DEEPAK SI BAL Pr esent :Mr . M. R. Shar ma, Advocat e f or t he appel l ant sMs. Ur vashi Dhugga, Advocat e f or t he r espondent s. . S. J. VAZI FDAR, ACTI NGCHI EF JUSTI CE: Thi s i s an appeal agai nst t he or der of t he I ncome TaxAppel l at e Tr i bunal r el at i ng t o t he Assessment Year 2009- 10.Fi vequest i ons ar e r ai sed i n t he appeal , but onl y quest i on No. ( i i i ) waspr essed at t he hear i ng. I t r eads as under : - “ i i i )Whet her i n t he f act s and i n t he ci r cumst ancesof t he case t he Lear ned I ncome Tax Appel l at eTr i bunal has gr ossl y er r ed i n uphol di ng t heor der of t he Assessi ng Of f i cer and or der oft he Commi ssi oner of I ncome Tax ( Appeal s) ,Chandi gar h wi t h r egar d t o t he di sal l owance ofi nt er est amount i ng t o Rs. 28, 70, 608/ - u/ s36( 1) ( i i i ) of t he I ncome Tax Act whi ch i s t heact ual expendi t ur e i ncur r ed by t he appel l antbut nei t her al l owed as a deduct i on u/ s36( 1) ( i i i ) as busi ness expendi t ur e nor t r eat edas capi t al expendi t ur e?” The appeali s admi t t ed on t he above subst ant i al quest i on of l aw. 2.The appel l ant s -a par t ner shi p f i r m soughta deduct i onunder Sect i on 36( 1) ( i i i ) of t he I ncome Tax Act , 1961, i n r espect oft he i nt er est pai d by t hem.The appel l ant s cont ended t hat t hey had r ai sed l oans at i nt er est and had, i n t ur n, advanced i nt er est f r eel oans t o t hei r par t ner s t o enabl e t hem t o pur chase pr oper t i es i nt hei r names. I t was cont ended bef or e us t hat t hese pr oper t i es wer epur chased by t he par t ner s t o enabl e t hem i n t ur n t o make t hemavai l abl e t o t he appel l ant s f or t he pur pose of t hei r busi ness. 3.The Assessi ng Of f i cer f ound t hat t he pr oper t i es had notbeen put t o use and, t her ef or e, di sal l owed t he deduct i on i n vi ew oft hepr ovi sot o Sect i on 36( 1) ( i i i ) . Accor di ngl y, t he Assessi ngOf f i cerdi sal l owed t he pr opor t i onat e i nt er estr el at i ng t oi nvest ment s al l egedl y made i n t he pr oper t i es. The di sal l owance ofRs. 56, 51, 346/ - i ncl uded i nt er est i n t he sum of Rs. 28, 70, 608/ - whi chhas been di sal l owed i n vi ew of t he pr ovi si ons of Sect i on 40a( i a)whi ch has not been chal l enged bef or e us. The quest i on of l aw bef or eus, t her ef or e, per t ai ns onl y t o t he bal ance amount ofRs. 27, 80, 738/ - whi ch was di sal l owed i n vi ew of t hepr ovi so t oSect i on 36( 1) ( i i i ) . The CI T ( Appeal s) r ej ect ed t he appel l ant s’ cont ent i ont hat t he i ssue had been set t l ed agai nst t he depar t ment i n t heear l i er assessment year . Whet her t hi s i s so or not i s i mmat er i al asf ar as t he appeal bef or e us i s concer ned. The appel l ant s r el i edupon t he or der of t he I ncome Tax Appel l at e Tr i bunal f or t heAssessmentYear 2007- 08. The depar t ment had f i l ed I TA No. 228 of2012 agai nst t hat or der . However ,t he t ax ef f ect bei ng l ess t hanRs. 20 l akhs, t he appeal was al l owed t o be wi t hdr awn by an or derdat ed 10. 02. 2016 i n vi ew of Ci r cul arNo. 21/ 2015 dat ed 10. 12. 2015i ssued by t he CBDT. The wi t hdr awal of I TA No. 228 of 2012 cannot ,t her ef or e, pr ecl ude t he depar t ment f r om r ai si ng t he cont ent i ons i nt hi s appeal . The Tr i bunal , by t he i mpugned or der , conf i r med t heassessment or der and t he or der of t he CI T ( Appeal s) . The Tr i bunal , by t he i mpugned or der , conf i r med t heassessment or der and t he or der of t he CI T ( Appeal s) . 4.Tor ei t er at e, t he appel l ant s’ case i s t hi s. Theappel l ant s had bor r owed f unds f r om i nst i t ut i ons and banks i n or dert o advance t he same t o t hei r par t ner s. The appel l ant s pai d i nt er estt o t he bank and t he f i nanci al i nst i t ut i ons i n r espect of t he f undsbor r owed. The appel l ant s di d not char ge t hei r par t ner s i nt er est i nr espect of t he l oans advanced t o t hei r par t ner s. The par t ner sut i l i zed t he l oan f or t he pur chase of commer ci al asset s i n or der t omake t he same avai l abl e t o t he appel l ant s i n r espect of t heappel l ant s’ busi ness. The appel l ant s cl ai med a deduct i on i n r espectof t he i nt er est under Sect i on 36( 1) ( i i i ) . 5.We wi l l assume t he assessees’ case on f act s t o be t r ue.I t woul d make no di f f er ence on account of t he f act t hat t heappel l ant s had not put t hese pr oper t i es t o use. Sect i on 36( 1) ( i i i ) was i nt r oduced by t he Fi nance Act ,2003, wi t h ef f ect f r om 01. 04. 2004.The Pr ovi so t o Sect i on36( 1) ( i i i ) was i nt r oduced by t he Fi nance Act , 2003, wi t h ef f ectf r om 01. 04. 2004 and, t her ef or e, appl i es t o t he appeal whi chper t ai ns t o t he Assessment Year 2009- 10.The sect i on pr i or t o i t samendment by t he Fi nance Act , 2015 wi t h ef f ect f r om 01. 04. 2016f al l s f or consi der at i on as t hi s appeal per t ai ns t o t he AssessmentYear 2009- 10. I t r eads as f ol l ows: - “ 36.( 1) The deduct i ons pr ovi ded f or i n t he f ol l owi ngcl auses shal l be al l owed i n r espect of t he mat t er s deal twi t h t her ei n, i n comput i ng t he i ncome r ef er r ed t o i nsect i on 28- …. .…. .…. .…. . ( i i i )t he amountof t he i nt er est pai d i n r espect ofcapi t al bor r owed f or t he pur poses of t he busi ness orpr of essi on: Pr ovi ded t hat any amount of t he i nt er est pai d, i nr espect of capi t al bor r owed f or acqui si t i on of an assetf or ext ensi on of exi st i ng busi ness or pr of essi on( whet her capi t al i sed i n t he books of account or not ) ;f or any per i od begi nni ng f r om t he dat e on whi ch t hecapi t al was bor r owed f or acqui si t i on of t he asset t i l lt he dat e on whi ch such asset was f i r st put t o use, shal lnot be al l owed as deduct i on. ” 6.We have assumed t he appel l ant s’case on f act s t o bewel l - f ounded. We woul d f ur t her assume t hat t he i nt er est was pai d byt he appel l ant s i n r espect of t he capi t al bor r owed f or t he pur poseof t hei r busi ness despi t e t he f act t hat t he appel l ant s i n t ur nadvanced t he amount s t o t hei r par t ner s wi t hout char gi ng i nt er est ,f or t he ar r angement was t o enabl e t he par t ner s t o pur chase t hepr oper t i es and maket he same avai l abl e f or t he appel l ant s’busi ness. We wi l l , t her ef or e, assume t hat t he appel l ant s have al soest abl i shed commer ci al expedi ency i n r espect oft hi sbusi nessar r angement by t he acqui si t i on of t he pr oper t y. The mat t er ,however , does not end t her e. 7.The pr ovi so t o Sect i on 36( 1) ( i i i ) was i nt r oduced by t heFi nance Act , 2003, wi t h ef f ect f r om 01. 04. 2004 and, t her ef or e,appl i es t o t he appeal whi ch per t ai ns t o t he Assessment Year 2009-10.I n our vi ew,t he deduct i on was l i abl e t o be di sal l owed i n vi ewof t hepr ovi sot o Sect i on 36( 1) ( i i i ) f or t he asset s t hat wer epur chased by t he par t ner s wer e not put t o use at l east dur i ng t heassessment year i n quest i on. The appel l ant s have f ai l ed t oest abl i sh t hat t he pr oper t i es pur chased by t hei r par t ner s wer e putt o use dur i ng t he r el evant per i od. 7.The pr ovi so t o Sect i on 36( 1) ( i i i ) was i nt r oduced by t heFi nance Act , 2003, wi t h ef f ect f r om 01. 04. 2004 and, t her ef or e,appl i es t o t he appeal whi ch per t ai ns t o t he Assessment Year 2009-10.I n our vi ew,t he deduct i on was l i abl e t o be di sal l owed i n vi ewof t hepr ovi sot o Sect i on 36( 1) ( i i i ) f or t he asset s t hat wer epur chased by t he par t ner s wer e not put t o use at l east dur i ng t heassessment year i n quest i on. The appel l ant s have f ai l ed t oest abl i sh t hat t he pr oper t i es pur chased by t hei r par t ner s wer e putt o use dur i ng t he r el evant per i od. 8.Mr . M. R. Shar ma, t he l ear ned counsel appear i ng on behal fof t he appel l ant s, however , cont ended t hat t he pr ovi so i s notappl i cabl e t o t hi s case as t he asset s wer e not pur chased by t heappel l ant s. He cont ended t hat t he pr ovi so appl i es onl y t o cases wher e t he assessee i t sel f pur chases t he asset . The submi ssi on i snot wel l - f ounded. 9.Under t hepr ovi so, any amount of i nt er est pai d i nr espect of capi t al bor r owed f or acqui si t i on ofan assetf or t heper i od begi nni ng f r om t he dat e on whi ch t he capi t al was bor r owedf or acqui si t i on of t he asset t i l l t he dat e on whi ch such asset wasf i r st put t o use cannot be al l owed as a deduct i on. The pr ovi sor el at es, t her ef or e, t o capi t al bor r owed f or acqui si t i on of an assetand not mer el y i n r espect of t he capi t al bor r owed f or t he pur chaseof an asset . The wor d “ acqui si t i on” i s of wi der ampl i t ude t han t hewor d “ pur chase” . A pur chase i s but one of t he modes of acqui si t i on.A pr oper t y can be acqui r ed even ot her wi se, such as, f or i nst ance,by way of l ease or l i cense.Bl ack’ s Law Di ct i onar y ( Ni nt h Edi t i on)def i nes “ acqui si t i on” as f ol l ows: - “ acqui si t i on,n. ( 14c) 1. The gai ni ng of possessi on orcont r ol over somet hi ng …. . …. . . . . ” 10.Possessi on of r i ght s and i nt er est i n an asset can begai ned i n sever al ways and not mer el y by t he pur chase t her eof . I tcan be gai ned f or i nst ance by vi r t ue of or under a l ease, l i cenceor on r ent . I f t he l egi sl at ur e i nt ended r est r i ct i ng t he ambi t oft he pr ovi so t o capi t al bor r owed f or t he pur chase of an asset , i twoul d have pr ovi ded so expr essl y. The l egi sl at ur e has del i ber at el yused a wi der expr essi on “ acqui si t i on of an asset ” t o ensur e t hatassessees do not get t he benef i t of a deduct i on unl ess and unt i lt hey put such asset s t o use. Ther e i s not hi ng i n t he pl ai n l anguageof t he sect i on or ot her wi se t hat per suades us t o hol d t hat t hel egi sl at ur e i nt ended excl udi ng al l modes of acqui si t i on of an assetot her t han by t he pur chase t her eof . Admi t t edl y, t he l oan was t aken by t he appel l ant s f or t heacqui si t i on of t he asset , namel y, t he sai d i mmovabl e pr oper t i es. Admi t t edl y, t he l oan was t aken by t he appel l ant s f or t heacqui si t i on of t he asset , namel y, t he sai d i mmovabl e pr oper t i es. 11.The pr ovi so does not oper at e onl y i n cases wher e t heassessee acqui r es t he asset di r ect l y. The mode of acqui si t i on i si r r el evantand t he pr ovi so woul d appl yso l ong as t he pr i mar yi nt ent i on of t he assessee i s t o acqui r e t he asset f or t he pur poseof i t s busi ness. We do not expr ess any opi ni on wher e t heacqui si t i on of t he asset i s onl y i nci dent alt o t he t r ansact i on orar r angementsuch as i n t he case ofa mer ger of compani es underSect i ons 391 and 394 of t he Compani es Act . I n t he pr esent case, t heappel l ant s/ assesseesal l egedl yacqui r ed t he asset s by advanci ngi nt er est - f r ee l oans t o t hei r par t ner s t o enabl e t he par t ner s t opur chase t he asset s and t o make t he same avai l abl e t o t hem f or t heext ensi on of t hei r exi st i ng busi ness. The assessees ar e i n t hebusi ness,i nt er al i a, of sel l i ng f oot wear . They cont end t hat t heyr equi r ed t he addi t i onal pr emi ses or showr ooms t o sel l t he same.Thi s was, t her ef or e, i n any event , an i ndi r ect acqui si t i on of t heasset by a par t i cul ar mode.The sol e i nt ent i on was t o acqui r e t heasset s. 12.The quest i on of l aw i s, t her ef or e, answer ed i n t henegat i ve i n f avour of t he r espondent s/ r evenue. The appeal i s accor di ngl y di smi ssed. ( S. J. VAZI FDAR) ACTI NG CHI EF JUSTI CE 21. 07. 2016par kash* ( DEEPAK SI BAL)JUDGE Not e: Whet her r epor t abl e: YES