Delhi High Court
Freeze King Industries Pvt. Ltd. vs Commissioner Of Income-Tax on 21 March, 2001
Equivalent citations: 2001VIIAD(DELHI)183, [2001]252ITR583(DELHI)
Author: Arijit Pasayat
Bench: Arijit Pasayat, D.K. Jain
JUDGMENT Arijit Pasayat, C.J.
1. At the instance of the assesses, the following question has been referred for the opinion of this court under Section 256(1) of the Income-tax Act, 1961 (for short "the Act"), by the Income-tax Appellate Tribunal, Delhi Bench "B" (in short "the Tribunal") :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the sum of Rs. 5,115 paid as interest along with Installment in respect of plot No. 182/14, Industrial Area, Chandigarh, was of a capital nature and was not allowable as revenue expenditure ?"
2. The dispute relates to the assessment year 1976-77. The background facts essentially are as follows. The assessed is a private limited company which was incorporated on June 24, 1966, and carried on the business of manufacture and sale of air-conditioning and refrigeration machinery. The previous year for the assessment year in question ended on June 30, 1975. On an application made by the assessed, the Estate Officer, Chandigarh Administration, by order dated September 11, 1972, allotted a plot in the Industrial Area, Chandigarh, for a consideration of Rs. 1,18,037. The assessed was required to pay 25 per cent. of the premium immediately. The assessed paid the required amount and possession was given on October 20, 1972. By a letter dated August 17, 1973, the Chandigarh Administration required the assessed to pay the first Installment of Rs. 24,336.25 which comprised principal of Rs. 16,180.84, interest of Rs. 5,472.66 and ground rent of Rs. 2,682.75. Thereafter the 2nd, 3rd, 4th and 5th Installments were required to be paid on 11th September of the years 1974 to 1977. Along with the Installment, the assessed paid interest of Rs. 5,115 for the assessment year in question and claimed it as a revenue expenditure. The Income-tax Officer (in short "the ITO") disallowed it, holding it to be of capital nature. The matter was carried in appeal before the Commissioner of Income-tax (Appeals) (in short "the CIT (A)"). The said authority affirmed the Assessing Officer's conclusion. The assessed carried the matter in appeal before the Tribunal. The assessed's stand was that the amount in question constituted revenue expenditure. The Tribunal did not accept me plea. It was held that the assessed had paid only certain Installments and the land in respect of which the Installments had been paid was yet to be used for the purpose of the business. No construction of the factory had also taken place. Therefore, the payment was held to be of capital nature. On being moved for reference, the question as set out above has been referred for the opinion.
3. We have heard learned counsel for the Revenue. There is no appearance on behalf of the assessed in spite of notice. Learned counsel for the Revenue pointed out that as has been analysed by the Tribunal, the expenditure made is clearly of capital nature.
4. At this juncture it would be necessary to take note of Section 43(1) of the Act, Explanation 8. The provision reads as follows :
"43. In Sections 28 to 41 and in this Section, unless the context otherwise requires-
(1) 'actual cost' means the actual cost of the assets to the assessed, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority :
Provided that where the actual cost of an asset, being a motor car which is acquired by the assessed after the 31st day of March, 1967, but before the 1st day of March, 1975, and is used otherwise than in a business of running it on hire for tourists, exceeds twenty-five thousand rupees, the excess of the actual cost over such amount shall be ignored, and the actual cost thereof shall be taken to be twenty-five thousand rupees . . .
Explanation 8.--- For the removal of doubts, it is hereby declared that where any amount is paid or is payable as interest in connection with the acquisition of an asset, so much of such amount as is relatable to any period after such asset is first put to use shall not be included, and shall be deemed never to have been included, in the actual cost of such asset."
5. It is to be noted that the Explanation in question was inserted by the Finance Act, 1986, with retrospective effect from April 1, 1974. This provision no doubt was not before the Tribunal when it dealt with the question. Therefore, it would be proper if the Tribunal considers the effect of this insertion and decides the claim of the assessed. The matter is accordingly remanded back to the Tribunal for fresh adjudication. While deciding the matter afresh, the principles laid down by the apex court in Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167 shall be kept in view by the Tribunal.
6. The reference stands disposed of.