COMMISSIONER OF INCOME TAX Vs. ORISSA CEMENT LIMITED

JUDGEMENT

(1.) THIS appeal by the Revenue under Section 260A of the Income -tax Act, 1961 (for short 'the Act'), is directed against the order dated January 22, 2002, passed by the Income -tax Appellate Tribunal (for short 'the Tribunal') in I. T. A. No. 513/Delhi of 1993, pertaining to the assessment year 1987 -88.

(2.) BRIEFLY stated the background facts, giving rise to the present appeal, are : The assessed, a public limited company, is engaged in the business of manufacturing cement refractories and allied products at Rajgangpur, Orissa. During the course of assessment proceedings for the assessment year 1987 -88, the Assessing Officer noticed that the assessed had claimed a sum of Rs. 62,09,542 as commission paid to Ceramic Sales, its sole selling agents for sale of refractories. The said agents were also responsible for realisation of the sale proceeds. He also noticed that the assessed had also claimed as revenue expenditure Rs. 78,22,545, paid by it as interest to various financial institutions. On being asked to explain the nature of these expenses, it was explained by the assessed that similar expenses on commission paid to the said sole selling agents was being allowed in the past and in so far as the claim of the other amount is concerned, it was payment of interest on the loans it had raised from various financial institutions for undertaking modernisation of the existing cement plant. Not being satisfied with the Explanationn and following the order for the assessment year 1985 -86, the Assessing Officer came to the conclusion that the commission having been paid without obtaining an approval of the Central Government, it was not laid out for business necessity. He accordingly disallowed the commission paid by the assessed. In so far as the interest paid to the financial institution was concerned, the same was held to be capital expenditure as according to him, the assessed was switching over to a different technology altogether.

(3.) THE Revenue as well as the assessed took the matter in further appeal to the Tribunal. In so far as the disallowance of commission paid by the assessed was concerned, the Tribunal again relied on its earlier order and upheld the view taken by the Commissioner (Appeals). However, on the second issue, the Tribunal was of the view that if a loan is taken for expansion or modernisation, of a continuing business then interest paid thereon is to be allowed as revenue expenditure. Thus, finding that in the present case the interest had been paid on the loan, raised from various financial institutions, for the expansion and modernisation of the existing plant, the Tribunal held that the said expenditure was revenue in nature. Hence, the present appeal.