The Commissioner of Income Tax, Guntur. V. M/S Balaji Industrial Corporation,

ITTA/59/2007

AI Insights

The case involves an appeal by the Commissioner of Income Tax, Guntur against M/s. Balaji Industrial Corporation Ltd., concerning the application of Section 36(1)(iii) of the Income Tax Act, which pertains to the deduction of interest paid on capital borrowed for business purposes. The Tribunal had previously dismissed the Revenue's appeal, a decision which the Commissioner challenged in the High Court. The main legal contention was whether the conditions for deduction under the specified section were met by the respondent. The High Court, after reviewing the facts and the Tribunal's findings, upheld the Tribunal's decision, agreeing that the conditions for deduction were satisfied.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 679793 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 06-02-2014
• Assessment Year: misc
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: B SHARMA
• Keywords: Business expansion; Capital borrowed; Deduction; Income Tax; Interest
• Section: 36 (1) (iii)

Judgement Text

"IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD (Special Original Jurisdiction) PRESENT THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTA 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 Tax Guntur … Petitioner And M/s. Balaji Industrial Corporation Ltd., 16/1254, Gandhi Nagar Nellore-1 … Respondent THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTA AND THE 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 the learned Tribunal dt.11.5.2005 by which appeal of the Revenue was dismissed. This appeal was admitted by the order of this Court dt.1.3.2007. However, no substantial question of law was formulated. We would have formulated the same, but we do not want to do so as we feel that this appeal deserves to be dismissed. In our view this appeal should not have been admitted, but when it has been admitted, we are bound to hear the matter. Sri B. Narasimha Sharma, learned counsel for the appellant, submits that the learned Tribunal has erroneously applied the provisions of Section 36(1)(iii) of the Income Tax Act. According to him, this expenditure would not have been deducted under the aforesaid said provision, as pre-conduction for deduction is not fulfilled in this matter. Without calling upon the learned counsel for the respondents, we have examined the contention of Mr. Sharma. We are unable to accept his contention that the conditions for application of Section 36(1)(iii) of the Income Tax Act are not fulfilled. We therefore set out Section 36(1)((iii) of the Income Tax Act. “Other deductions. 36. (1) The deductions provided for in the following clauses shall be allowed 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 the purposes of the business or profession: Provided that any amount of the interest paid, in respect of capital borrowed for acquisition of an asset for extension of existing business or profession (whether capitalized in the books of account or not); for any period beginning from the date on which the capital was borrowed for acquisition 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, or subscribers in Mutual Benefit Societies which fulfil such conditions as may be prescribed, shall be deemed to be capital borrowed within the meaning of this clause;” Therefore, the pre-conditions are that whether capital has been borrowed for the purpose of business or not, if this pre-condition has been satisfied, obviously the benefit under the aforesaid provision has to be allowed. In that context, we noticed that the Tribunal has come to a fact finding after examining the books of account of the assessee, as under: “…The assessee company was having Steel Division, Distillery Division, Shipping Business, Exports, IMPL Trading, Distribution and Metal Caps manufacturing for IMFL bottles. The assessee firm has entered into new project, i.e., Real Estate for which they have advanced Rs.20,33,50,000/- to the parties referred in letter dated 11.1.99 for projects/joint development of Real Estate held by three parties. The amounts remained as advances and no right whatsoever created on these properties in favour of assessee. The Assessing Officer has not treated the same as stock in trade and therefore, disallowed the financial charges for Rs.4,00,44,075/- out of Rs.16,01,05,841/- which is approximately 25%. In the books of accounts the interest relating to the funds borrowed for making above advances was treated as expenditure. The company has taken advance for new project for entering into new business, i.e., Reas Estate business for development/diversification since they are having six divisions for which the control of management of accounts are same and therefore it is to be treated that the assessee company has taken the loan for new project/new business in normal course of business of the assessee for expansion/diversion. Therefore, this cannot be treated as separate. The assessee has claimed the total financial charges of Rs.16,01,05,841/- which includes Rs.4,00,44,075/- which is treated as deferred in the books of accounts but there is no such treatment in the Income Tax Act available.” In view of the aforesaid fact finding which has not been alleged to be a perverse one, we think that the conditions for allowing deduction under Section 36(1)(iii) of the Income Tax Act are fulfilled. Accordingly, we reject the contention of Sri Sharma that the conditions have not been fulfilled. In view of the aforesaid discussion, nothing remains to be decided by this Court in this appeal. The appeal is accordingly dismissed. There will be no order as to costs. ________________________ K.J. SENGUPTA, CJ _______________________ SANJAY KUMAR, J 6.2.2014 bnr "