COMMISSIONER OF INCOME TAX Vs. INDIA CEMENTS LIMITED

JUDGEMENT

(1.) THE India Cements, Limited, Madras, obtained a loan of Rs. 40 lakhs from the Indian Finance Corporation on the mortgage of the company's assets. THE necessary expenditure incurred in connection therewith came to Rs. 84,633 such expenditure including the stamps and the registration fee for the document,, counsel's fee and legal fees for drafting, etc., and certain other minor incidental charges. THE transaction was entered into on 4th October, 1949 in the account year relevant to the assessment year 1950-51. THE loan was repayable by the assessee in annual instalments of Rs. 4 lakhs from 1st October, 1952. This expenditure was carried on the accounts of the assessee in its balance-sheet as mortgage loan expenses. In the accounts for the year ending 31st March, 1953, it was written off by appropriation against the profits of that year. During the assessment proceedings for the assessment year 1950-51, the claim was made by the assessee before the Income-tax Officer that this expenditure should be allowed as an item of necessary expense coming within the scope of Section 10(2)(xv). THE Income-tax Officer found that even according to the information furnished by the Auditors, Rs. 25 lakhs out of the amount borrowed was paid in discharge of a loan taken earlier from Messrs. Harvey, Ltd., which amount had been borrowed and " utilised on the capital assets " of the assessee company. It was not however clear how the balance of Rs. 15 lakhs was dealt with. THE Income-tax Officer took the view that Section 10(2)(xv) specifically excluded any item of capital expenditure and that since money had been obtained only for capital purposes, the expenditure incurred in relation thereto should also be treated aseapital expenditure. THE deduction claimed was disallowed. THE appeal to the Appellate Assistant Commissioner shared the same fate, the Appellate Authority agreeing with the Income-tax Officer that the circumstances indicated the capital nature of the loan and the expenditure.

(2.) IN the further appeal to the Tribunal, a different view was taken. The Tribunal recorded:

(3.) THE reasoning adopted by the learned Judges of the Kerala High Court would certainly apply with greater force to the facts of the present case. As we have indicated, it was conceded before the Income-tax Officer by the Auditors of the assessee that the earlier loan of Rs. 25 lakhs, which had been taken from Harvey Mills, had been expended on capital account. We have also pointed out that the Tribunal in holding to the contrary had no materials before it except for a vague inference which they purported to draw from the circumstance that the paid-up capital was almost equal to the expenditure on fixed capital of the company and that any amount utilised by the company over and above should have correlation only to the working capital. How the further balance of the amount of Rs. 15 lakhs was in fact utilised is not clear from the records of the case. Though, if we accept the validity of the Kerala decision, the point has to be straightaway determined against the assessee, we consider it desirable to examine the several cases that have been cited before us.