Ruit/3/2016 v. Ruit/3/2016

IN THE HIGH COURT OF BOMBAY AT GOA REFERENCE UNDER INCOME TAX ACT NO. 3 OF 2016 M/S. MANDOVI PELLETS LMT. ... Applicant VersusTHE COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, BANGALORE. ... Respondent Mr. P. Karpe, Advocate for the applicant. Mr. K. Arvinda, Advocate for the respondent. P.C. Heard Mr. P. Karpe, learned Counsel for the applicant and Mr. K. Arvinda, learned Advocate for the respondent. 2. In the above reference, it is not disputed that 14 questionwere came to be referred for decision of this Court. 3. After hearing the learned Counsel for the applicant as well as the respondent, it is not disputed that the questions referred tothis Court are no longer res integra in view of the judgment ofthe Apex Court report in (1997) 93 Taxman 502(SC) in the caseof Tuticorim Alkali Chemicals and Fertilizers Ltd. VsCommissioner of Income-Tax, wherein they have observed atparagraphs 14 and 15 thus:- "Para 14: In other words, if the capital of a company is fruitfullyutilised instead of keeping it idle the income thus generated will be of revenue nature and not accretion of capital. Whether thecompany raised the capital by issue of shares or debentures or byborrowing will not make any difference to this principle. Ifborrowed capital is used for the purpose of earning income thatincome will have to be taxed in accordance with law. Income issomething which flows from the property. Something received inplace of the property will be capital receipt. The amount ofinterest received by the company flows from its investments andis its income and is clearly taxable even though the interestamount is earned by utilising borrowed capital. Para 15: It is true that the company will have to pay interest onthe money borrowed by it. But that cannot be a ground forexemption of interest earned by the company by utilising theborrowed funds as its income. It was rightly pointed out in thecase of Kedar Narain Singh vs. CIT (1938)6 ITR 157(All) that'anything which can properly be described as income is taxableunder the Act unless expressly exempted'. The interest earned bythe assessee is clearly its income and unless it can be shown thatany provision like Section 10 has exempted it from tax, it will betaxable. The fact that the source of income was borrowed moneydoes not detract anything from the Revenue character of thereceipt. The question of adjustment of interest payable by thecompany against the interest earned by it will depend upon theprovisions of the Act. The expenditure would have beendeductible as incurred for the purpose of business if the assessees business had commenced. But that is not the case here. Theassessee may be entitled to capitalise the interest payable by it.But what the assessee cannot claim is adjustment of thisexpenditure against interest assessable under Section 56. Section 57 of the Act sets out in its clauses (i) to (iii) the expenditureswhich are allowable as deduction from income assessable underSection 56. It is not the case of the assessee that the interestpayable by it on term loans are allowable as deduction underSection 57. 4. Taking note of the said observation, issue referred has to beanswered in the positive and in favour of the revenue. Abovereference accordingly stands disposed of. 5. Registry is accordingly directed to sent the said order to theconcerned Income Tax Appellate Tribunal, Panaji for furtherdecision in accordance with law. PRITHVIRAJ K. CHAVAN, J. vn F. M. REIS, J.