Itta/59/2007 Of The Commissioner Of Income Tax, Guntur v. M/S Balaji Industrial Corporation

IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD (Special Original Jurisdiction) PRESENT THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTISENGUPTA AND THE HON’BLE SRI JUSTICE SANJAY KUMAR INCOME TAX APPELLATE TRIBUNAL APPEAL NO.59 OF 2007 DATED:6.2.2014 Between: The Commissioner of Income TaxGuntur … Petitioner And M/s. Balaji Industrial Corporation Ltd.,16/1254, Gandhi NagarNellore-1 … Respondent THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTISENGUPTA ANDTHE HON’BLE SRI JUSTICE SANJAY KUMAR I.T.T.A. NO.59 OF 2007 JUDGMENT:(per the Hon’ble the Chief Justice Sri Kalyan Jyoti Sengupta) This appeal is directed against the judgment and order of thelearned Tribunal dt.11.5.2005 by which appeal of the Revenue wasdismissed. This appeal was admitted by the order of this Court dt.1.3.2007. However, no substantial question of law was formulated. We wouldhave formulated the same, but we do not want to do so as we feel thatthis appeal deserves to be dismissed. In our view this appeal shouldnot have been admitted, but when it has been admitted, we are boundto hear the matter. Sri B. Narasimha Sharma, learned counsel for the appellant,submits that the learned Tribunal has erroneously applied theprovisions of Section 36(1)(iii) of the Income Tax Act. According tohim, this expenditure would not have been deducted under theaforesaid said provision, as pre-conduction for deduction is not fulfilledin this matter. Without calling upon the learned counsel for the respondents, wehave examined the contention of Mr. Sharma. We are unable toaccept his contention that the conditions for application of Section36(1)(iii) of the Income Tax Act are not fulfilled. We therefore set outSection 36(1)((iii) of the Income Tax Act. “Other deductions. 36. (1) The deductions provided for in the following clauses shall beallowed in respect of the matters dealt with therein, in computing the income referred to in section 28— (i) … … … (ii) … … … (iii) the amount of the interest paid in respect of capital borrowed for thepurposes of the business or profession: Provided that any amount of the interest paid, in respect of capitalborrowed for acquisition of an asset for extension of existing business orprofession (whether capitalized in the books of account or not); for anyperiod beginning from the date on which the capital was borrowed foracquisition of the asset till the date on which such asset was first put to use,shall not be allowed as deduction. Explanation. – Recurring subscriptions paid periodically by share-holders, orsubscribers in Mutual Benefit Societies which fulfil such conditions as maybe prescribed, shall be deemed to be capital borrowed within the meaning ofthis clause;” Therefore, the pre-conditions are that whether capital has beenborrowed for the purpose of business or not, if this pre-condition hasbeen satisfied, obviously the benefit under the aforesaid provision hasto be allowed. In that context, we noticed that the Tribunal has come toa fact finding after examining the books of account of the assessee, asunder: Explanation. – Recurring subscriptions paid periodically by share-holders, orsubscribers in Mutual Benefit Societies which fulfil such conditions as maybe prescribed, shall be deemed to be capital borrowed within the meaning ofthis clause;” Therefore, the pre-conditions are that whether capital has beenborrowed for the purpose of business or not, if this pre-condition hasbeen satisfied, obviously the benefit under the aforesaid provision hasto be allowed. In that context, we noticed that the Tribunal has come toa fact finding after examining the books of account of the assessee, asunder: “…The assessee company was having Steel Division, DistilleryDivision, Shipping Business, Exports, IMPL Trading, Distribution and MetalCaps manufacturing for IMFL bottles. The assessee firm has entered intonew project, i.e., Real Estate for which they have advancedRs.20,33,50,000/- to the parties referred in letter dated 11.1.99 forprojects/joint development of Real Estate held by three parties. Theamounts remained as advances and no right whatsoever created on theseproperties in favour of assessee. The Assessing Officer has not treated thesame as stock in trade and therefore, disallowed the financial charges forRs.4,00,44,075/- out of Rs.16,01,05,841/- which is approximately 25%. Inthe books of accounts the interest relating to the funds borrowed for makingabove advances was treated as expenditure. The company has takenadvance for new project for entering into new business, i.e., Reas Estatebusiness for development/diversification since they are having six divisionsfor which the control of management of accounts are same and therefore it isto be treated that the assessee company has taken the loan for newproject/new business in normal course of business of the assessee forexpansion/diversion. Therefore, this cannot be treated as separate. Theassessee has claimed the total financial charges of Rs.16,01,05,841/- whichincludes Rs.4,00,44,075/- which is treated as deferred in the books ofaccounts but there is no such treatment in the Income Tax Act available.” In view of the aforesaid fact finding which has not been allegedto be a perverse one, we think that the conditions for allowingdeduction under Section 36(1)(iii) of the Income Tax Act are fulfilled. Accordingly, we reject the contention of Sri Sharma that the conditionshave not been fulfilled. In view of the aforesaid discussion, nothing remains to bedecided by this Court in this appeal. The appeal is accordingly dismissed. There will be no order asto costs. ________________________ K.J. SENGUPTA, CJ _______________________ SANJAY KUMAR, J 6.2.2014bnr