M/S.spic Limited, Chennai v. Https://Hcservices.ecourts.gov.in/Hcservices

IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated: 07.12.2009 Coram The Honourable Mr.Justice K.RAVIRAJA PANDIANandThe Honourable Mr.Justice M.M.SUNDRESH TAX CASE(APPEAL)Nos.2409 to 2412 of 2008& TCMP.NOS.43 TO 45 OF 2008 Commissioner of Income Tax IIIChennai M/s.SPIC Limited, Chennai ...Appellant in all the appealsVs...Respondent inall the appeals APPEALS under Section 260A of the Income Tax Act against thecommon order dated 25.3.2003 made in ITA.Nos.1160 to 1163/Mds/99 onthe file of the Income Tax Appellate Tribunal, Madras 'B' Bench forthe assessment years 1989-90 to 1992-93 against the order of theCommissioner of Income Tax Appeals V in ITA.No.168/92-93 98,434/93-94, 64/95-96 dated 19.5.99 against the order of 1. the DeputyCommissioner of Income Tax dated 10.3.95 made in PA.No.47-031-CY-0851, G.I.No.16-S/1992-93 2. The Deputy Commissioner of Income Taxdated 30.12.93 made in P.A.No.47-031-CV-0851 G.I.No.16-S/1991-923. The Deputy Commissioner of Income Tax Special Range VI, Madras -600 034 dated 24.3.93 made in PA-47-031-CV-0851 GI.No.16-S/1990-914. The Deputy Commissioner of Income Tax, Special Range VI, dated31.3.92madeinPa.No.47-031-CV-0851GI.No.16-S/1989-90respectively. For Appellant : Mr.K.Subramaniam, learned Standing Counsel JUDGMENT (JUDGMENT WAS DELIVERED BY K.RAVIRAJA PANDIAN,J) By formulating the following substantial questions of law :"i.Whether in the facts and circumstances of thecase, the Tribunal was right in holding that depreciationshould be allowed on standby spare parts even thoughthey were not taken for use during the year ? ii.Whether in the facts and circumstances of thecase, the Tribunal was right in holding that investmentallowance should be allowed on standby spare parts eventhough they were not taken for use during the year ? iii. Whether in the facts and circumstances ofthe case, the Tribunal was right in holding that theexpenses related to obtaining fixed deposits from thepublic is a revenue expenditure liable for deduction ?And iv. Whether in the facts and circumstances of thecase, the Tribunal was right in holding that unabsorbeddepreciation can be set off from income from houseproperty ?"the Revenue has come up by way of appeals against the common orderof the Income Tax Appellate Tribunal dated 25.3.2003 made inITA.Nos.1160 to 1163/Mds/99 relating to the assessment years 1989-90 to 1992-93. 2. The facts culled out from the statement of facts in thememorandum of grounds of appeals read as follows :For the relevant assessment years, the assessee companyclaimed the benefit of carry over of the losses of the earlieryears comprising of business loss, unabsorbed depreciation andunabsorbed business allowances. The Assessing Officer, inter alia,disallowed the expenditure on standby assets, deposit mobilizationexpenses, investment allowance on standby assets and set off ofunabsorbed depreciation against house property income. 3. Aggrieved by the assessment orders, the assesseepreferred appeals to the Commissioner of Income Tax (Appeals), whoallowed the appeals based on the orders of the earlier years. TheRevenue carried the matter on appeal to the Income Tax AppellateTribunal. The Tribunal also, relying on its own decision, decidedall the issues in favour of the assessee. The correctness of thesame is canvassed by the Revenue in these appeals as aforesaid byformulating the above questions of law. 4.We have heard the learned counsel appearing for theRevenue and perused the materials available on record. https://hcservices.ecourts.gov.in/hcservices/ 3. Aggrieved by the assessment orders, the assesseepreferred appeals to the Commissioner of Income Tax (Appeals), whoallowed the appeals based on the orders of the earlier years. TheRevenue carried the matter on appeal to the Income Tax AppellateTribunal. The Tribunal also, relying on its own decision, decidedall the issues in favour of the assessee. The correctness of thesame is canvassed by the Revenue in these appeals as aforesaid byformulating the above questions of law. 4.We have heard the learned counsel appearing for theRevenue and perused the materials available on record. https://hcservices.ecourts.gov.in/hcservices/ 5.In respect of the first and second questions, a DivisionBench of this Court in the case of CIT, Chennai Vs. SouthernPetrochemical Industries Corporation Limited in TC(A)Nos.74 and 75of 2003 by judgment dated 29.1.2007 considered the issue anddecided in favour of the assessee. Learned counsel for the Revenuesubmits that the issue is covering the questions of law raised inthis case. The third question of law formulated in this case isalso covered and decided in the very same decision in favour of theassessee by observing 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 tohave a cursory look on the decided case laws on thispoint. In India Cements Ltd. Vs. CIT (60 ITR 52), whiledeciding the nature of the amount spent towards stamps,registration fees, lawyer's fees, etc., for obtainingloan, the Supreme Court observed as follows :- 'A loan may be intended to be used for the purchaseof raw material when it is negotiated, but the company,may, after raising the loan, change its mind and spend iton securing capital assets. Is the purpose at the timethe loan is negotiated to be taken into consideration orthe purpose for which it is actually used ?......thepurpose for which the new loan was required wasirrelevant to the consideration of the question whetherthe expenditure for obtaining the loan was revenueexpenditure 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 the expenditurewas made for securing the use of money for a certainperiod; and (c) that it is irrelevant to consider theobject with which the loan was obtained.'Observing so, the Supreme Court held that the act ofborrowing money was incidental to the carrying on ofbusiness, the loan obtained was not an asset or anadvantage of enduring nature, the expenditure was madefor securing the use of money for a certain period and itwas irrelevant to consider the object with which the loanwas obtained and therefore, the amount spent was not inthe nature of capital expenditure and was laid out orexpended wholly and exclusively for the purpose of theassessee's business and was therefore allowable as adeduction. The Apex Court also held that obtainingcapital by issue of shares is different from obtainingloan by debentures. The Bombay High Court in CIT Vs. Mahindra Ugine andSteel Co. Ltd. (250 ITR 696) considered the allowability of stamp duty paid on debenture issue as businessexpenditure and held that the expenditure is revenue innature. In that case, attack was made by the Revenue onthe strength of Section 35D of the Act which deals withamortisation of certain preliminary expenses and theBombay High Court held that of stamp duty paid on debenture issue as businessexpenditure and held that the expenditure is revenue innature. In that case, attack was made by the Revenue onthe strength of Section 35D of the Act which deals withamortisation of certain preliminary expenses and theBombay High Court held that 'Section 35D deals with amortisation of certainpreliminary expenses. Under Section 35D(1)(ii), it islaid down that after the commencement of the business anyexpenditure as described in Section 35D(2), which isincurred in connection with the extension of theindustrial undertaking or with regard to setting up a newindustrial unit then the assessee shall be allowed adeduction at an amount equal to one-tenth of suchexpenditure for each of the ten successive previous yearsbeginning with the previous year in which the businesscommences or the previous year in which expansion of theindustrial undertaking is completed, etc. In the presentcase, on the facts, the Tribunal has found that theobject of the debenture issue was to meet the workingcapital requirement of the assessee and therefore, theexpenditure was considered to be a revenue expenditure.' In CIT Vs. Investment Trust of India Limited (264ITR 506), this Court held that the expenditure onadvertisements in newspapers inviting fixed deposits fromthe public is allowable in the words : 'In view of the provisions contained in Section 58Aof the Companies Act, 1956, the assessee company had toadvertise the notice calling for deposits and if therewas any breach, the assessee was liable to be proceededagainst under the relevant provisions of the 1956 Act.Section 37(3A) was introduced to curb extravagant andsocially wasteful expenditure on advertisement at thecost of the exchequer. The assessee had incurred theexpenditure on advertisements for collecting fixeddeposits and the advertisements were statutoryadvertisements and therefore, the provisions of Section37(3A) read with Section 37(3B) were not applicable tothe said expenditure.' Considering the ratio laid down in the above saiddecisions, we are of the view that when the Tribunal hasrecorded a finding that the expenses relating toobtaining fixed deposits are closely linked with thebusiness requirement of the assessee, such expenses areallowable expenses. We therefore hold that the Tribunalwas right in holding that the expenses for obtainingfixed deposits from the public is revenue in nature.Accordingly, we answer the second question in theaffirmative and against the Revenue." 6.In respect of the fourth question, it could be seen thatthe amendment has been incorporated in the provision that the carryforward depreciation cannot be given set off from the businessincome with effect from 1.4.2002. The Tribunal has taken in aid theSupreme Court judgment in Jaipuria China Clay Mines's case(reported in 59 ITR 555) and the decision in the case of CIT Vs.Mother India Refrigeration Industries P.Ltd. (155 ITR 711). Thevery same question has been considered by the Supreme Court inrespect of 1922 Act and held in the affirmative in favour of theassessee. The Tribunal has followed only the dictum laid down bythe Supreme Court. In addition to the above, the very statuteprovides that such a set off can be done till the provision wasamended with effect from 1.4.2002. 7.All the questions of law, which have been formulated inthese appeals, have already been answered in favour of theassessee, which require no determination at this point of time byentertaining these appeals. 8.Accordingly, these appeals are dismissed. Consequently,all connected pending TCMPs are also dismissed. No costs. Sd/- Asst.Registrar. /true copy/ RSTo Sub Asst.Registrar. 1. The Commissioner of Income Tax III, Chennai. 2. The Income Tax Appellate Tribunal, Madras 'B' Bench. 3. The Commissioner of Income Tax (Appeals)V121 Nungambakkam High Road, Chennai 7.All the questions of law, which have been formulated inthese appeals, have already been answered in favour of theassessee, which require no determination at this point of time byentertaining these appeals. 8.Accordingly, these appeals are dismissed. Consequently,all connected pending TCMPs are also dismissed. No costs. Sd/- Asst.Registrar. /true copy/ RSTo Sub Asst.Registrar. 1. The Commissioner of Income Tax III, Chennai. 2. The Income Tax Appellate Tribunal, Madras 'B' Bench. 3. The Commissioner of Income Tax (Appeals)V121 Nungambakkam High Road, Chennai 4. The Deputy Commissioner of Income Tax,Special Range VI, Madras- 600 0341 cc to Mr.K. Subramaniam, Advocate, SR. 66851 NM (CO)kk 18/12