Gujarat High Court
Reliance Petro Products Pvt. Ltd vs Assistant Commissioner Of Income ... on 1 December, 2014
Author: Ks Jhaveri
Bench: Ks Jhaveri
O/TAXAP/604/2005 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 604 of 2005
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE KS JHAVERI
and
HONOURABLE MR.JUSTICE K.J.THAKER
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1 Whether Reporters of Local Papers may be allowed to see
the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of the
judgment ?
4 Whether this case involves a substantial question of law as
to the interpretation of the Constitution of India, 1950 or any
order made thereunder ?
5 Whether it is to be circulated to the civil judge ?
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RELIANCE PETRO PRODUCTS PVT. LTD.....Appellant(s)
Versus
ASSISTANT COMMISSIONER OF INCOME TAX....Opponent(s)
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Appearance:
MR JP SHAH, ADVOCATE for the Appellant(s) No. 1
MR MANISH J SHAH, ADVOCATE for the Appellant(s) No. 1
MR.VARUN K.PATEL, ADVOCATE for the Opponent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE KS JHAVERI
and
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O/TAXAP/604/2005 JUDGMENT
HONOURABLE MR.JUSTICE K.J.THAKER
Date : 01/12/2014
ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE KS JHAVERI)
1. By way of this appeal, the appellant has challenged the judgment and order dated 31.8.2004 passed by the Income Tax Appellate Tribunal, Ahmedabad Bench 'C' in ITA No. 4001/Ahd/2003 for AY 2000-01.
2. While admitting this appeal, this Court has framed the following substantial questions of law:
[1] Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in law in holding that interest paid on funds borrowed for purchase of shares of India Polyfibres Ltd., a BIFR Company, is not deductible under Section 36(1)
(iii) of the Income-tax Act, 1961 ?
[2] Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that legal and professional charges of Rs. 7,81,000/- incurred for rehabilitation and revival of India Page 2 of 8 O/TAXAP/604/2005 JUDGMENT Polyfibres Ltd., a BIFR Company, was not expenditure on revenue account and had not been incurred wholly and exclusively for the purpose of business of the assessee ?"
3. Mr.Shah learned advocate appearing for the appellant has taken us through the observation made by the Tribunal in para-4, which reads as under:
"4. These two clauses are also of no help to the assessee. Clause 22 authorizes the company for investment and dealing. Clause-43, though entitles the assessee to carry on all that activities, does not mean it can carry on business or acquiring shares for the purpose of carrying the business. Its expenses are debited by the entry in the accounts and other attempting balances. Balance Sheet shows "Long Term Investment" and not "Stock-in-Trade". The Company for which the shares are acquired is a BIFR Company, the shares of which are hardly tradable. The assessee own version that intention was to acquire the company through BIFR shows that it was not with an intention to carry on business, nor to acquire the shares, but to acquire the company through BIFR. All these show that it was Page 3 of 8 O/TAXAP/604/2005 JUDGMENT an activity other than business carried on by the assessee. On the facts and circumstances of the case,it cannot also be said that it is an adventure in the nature of trade. We accordingly, vacate the order of the CIT(A) and restore that of the AO."
4. Mr. Shah learned advocate appearing for the appellant has also taken us through the observations made by the CIT(A) in para 3.2 and has also taken us through section 36(1)(iii) and section 37 of the Income-tax Act, 1961.
5. Mr. Shah learned advocate appearing for the appellant has also taken us through clause 43, which reads as under:
"43. To carry business of an investment company and to invest in and acquire and hold and otherwise deal in shares, stocks, debentures, debenture-stocks, bonds, obligations and securities issued or guaranteed by any company or Private Industrial Enterprises or Government and in diamonds, jewellery, pearls, silver, gold,ornaments, akiks, paintings and antiques."
6. Mr. Shah learned advocate has relied on the decision of the Hon'ble Supreme Court in the case Page 4 of 8 O/TAXAP/604/2005 JUDGMENT of Deputy Commissioner of Income-Tax vs. Core Health Care Ltd., reported in [2008] 298 ITR 194 (SC), wherein, the Hon'ble Supreme Court has held as under:
"Held accordingly, that the assessee was entitled to deduction under section 36(1)(iii) prior to its amendment by the Finance Act, 2003, in relation to money borrowed for purchase of machinery even though the assessee had not used the machinery in the year of borrowing."
7. Learned advocate Mr. Varun K. Patel for the respondent has contended that in view of section 43 and the observation made by the Tribunal in para-3 of its' order and in view of the decision of the Bombay High Court in the case of Crescent Organics (P.) Ltd. v. Deputy Commissioner of Income-tax, Range-8(1), Mumbai reported in [2014] 49 taxmann.com 128 (Bombay), the view taken by the Tribunal is just and proper.
8. We have heard the learned advocates appearing for the parties and considered the submissions. The CIT(A), while considering the issue, has given detailed reasons in para-3.2. Para 3.2 of the order of CIT(A), reads as under:
"3.2 I have considered the facts of the case and submissions of the Page 5 of 8 O/TAXAP/604/2005 JUDGMENT Authorised Representative of the appellant carefully. I have also gone through the decisions relied upon by the Authorised Representative carefully and the observations of the Assessing Officer in the assessment year. I find that there is sufficient force in the contention put forth by the Authorised Representative of the appellant. The Hon'ble Supreme Court in the case of Madhav Prasad Jatia v. CIT reported in 118 ITR 200, has held that at the time of allowing interest u/s 36 of the IT Act, 1961, three conditions are required to be seen for allowing deduction in respect of the borrowed funds for the purpose of business.
a) Capital should be borrowed by the assessee
b) It must be borrowed for the purpose of business
c) Interest must have been paid.
In the instant case the appellant company has fulfilled all the above conditions. Further in the case of CIT vs. Rajiv Lochan Kanoria reported in 208 ITR 616, the Hon'ble Calcutta High Court has also observed that it is immaterial whether the borrowing is for the purpose Page 6 of 8 O/TAXAP/604/2005 JUDGMENT of acquiring a capital asset or stock- in-trade. In the instant case the appellant has incurred interest expenditure in respect of unsecured loan taken from a body corporate and have been utilised for the purpose of acquisition of shares of India Polyfibres Ltd on which no dividend has been received. Further, the appellant company has also offered the interest income received on the investments made during the year as business income. The appellant company is engaged in the business of trading in shares and the interest payments are for the business purpose only. Therefore, I am of the view, that the expenditure relatable to such an investment is allowable business expenditure u/s 36(1)(iii) of the IT Act. Having considered the facts of the case, I am of the view, that there is no justification for the disallowance made by the Assessing Officer. The addition made by the Assessing Officer of Rs. 6,75,254/- is therefore deleted.
9. The CIT(A) has after discussing the law as well as facts, has come to the conclusion that the appeal deserves to be allowed and investment is allowable business expenditure under sec.
36(1)(iii) of the Act. However, the Tribunal,
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O/TAXAP/604/2005 JUDGMENT
while considering the appeal has not given cogent reasons and has summarily allowed the appeal. In our view, since no details reasons are given by the Tribunal, the matter is required to be remitted back to the Tribunal for fresh consideration and the order passed by the Tribunal is required to be quashed and set. In that view of the matter, the order passed by the Tribunal is quashed and set aside. The matter is remitted back to the Tribunal for afresh consideration on all other aspects. This Tax Appeal is disposed of accordingly.
(K.S.JHAVERI, J.) (K.J.THAKER, J) mandora Page 8 of 8