COMMISSIONER OF INCOME TAX Vs. MAHARASHTRA ELECTROSMELT LIMITED

JUDGEMENT

(1.) BY this reference made under S. 256(1) of the IT Act, 1961, the following question has been referred to this Court for opinion at the instance of the Revenue :

(2.) THE assessee is a limited company incorporated for doing business as a manufacturer of ferro manganese. The assessment year involved in this reference is 1977 78, the previous year of which was the year ended on 30th June, 1976. During the assessment year under consideration, the assessee was engaged in the erection of a shelter for the purpose of manufacturing ferro manganese. The commercial production had not started. The total expenses incurred during the year amount to Rs. 83,32,473. The assessee had realised a sum of Rs. 3,14,366 as interest on short term deposits of the funds not immediately required by the assessee. At the same time, the assessee had paid a sum of Rs. 50,51,504 as interest on funds borrowed by it for the purpose of its business. During the year, the assessee had received a sum of Rs. 2,742 from the sale of empty gunny bags. Out of the total expenses of Rs. 33,32,473 incurred during the year, the assessee treated a sum of Rs. 1,04,180 as an item which could not be capitalised. Out of the balance amount of Rs. 82,28,283, the assessee deducted the two items of income viz., interest and miscellaneous income amounting in all to Rs. 3,17,108 and capitalised the balance of Rs. 79,11,173. Hence the assessee adjusted the income earned by it during the period of construction against its other expenses and took the net amount as the expense of construction.

(3.) THE total income of an assessee (subject to statutory exemption) is chargeable under S. 4(1) of the IT Act, 1961 (for short, ' the Act'). Sec. 14 of the Act enumerates the six heads under which the income or an assessee falls to be charged. It reads an under :