PREMIER AUTOMOBILES LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference under S. 66(1) of the Indian INCOME TAX ACT, 1922.

(2.) THE assessee is a public limited company. The assessment year relevant to this reference is 1956 -57, the corresponding accounting year being the year ended on 30th June, 1955. During the accounting year, the assessee -company incurred expenditure of Rs. 1,28,401 in connection with the issue of debentures. The loan secured by the debentures was Rs. 50,00,000. The loan was obtained from the Industrial Finance Corporation. To secure the loan a mortgage was created by a debenture trust deed dt. 23rd Dec., 1953. Under cls. 7 and 24(h) of the debenture trust deed, the assessee -company was under an obligation to use the monies raised by the issue of the debentures for erecting, constructing, reinstating or restoring its buildings or structures and for acquiring or installing plant and machinery required for the business of the assessee -company. The assessee claimed the said sum of Rs. 1,28,401 in the above assessment year as a deductible expenditure under S. 10(2)(xv) or failing that, in the alternative, that it should form part of the actual cost of the assets acquired with the monies borrowed and be taken into account in the calculation of depreciation and development rebate under S. 10(2)(vi) and (vib) respectively. The Tribunal has rejected both these claims. The following two questions of law have been referred :

(3.) NOW , the principles laid down by the Supreme Court in its judgment in India Cements Ltd. vs. CIT (1966) 60 ITR 52 (SC) : TC17R.649 have a direct application in the case before us. In that case the amount spent for stamp duty, registration fee, etc., in respect of the issue of debentures to secure a loan was claimed as business expenditure. It was held that the amount spent was not in the nature of capital expenditure and was laid out or expended wholly and exclusively for the purpose of the assessee's business and was, therefore, allowable as a deduction under S. 10(2) (xv). It was held that the act of borrowing money was incidental to the carrying on of business, the loan obtained was not an asset or an advantage of enduring nature, the expenditure was made for securing the use of money for a certain period and it was irrelevant to consider the object with which the loan was obtained.