Search Results Page
Search Results
1 - 10 of 12 (0.24 seconds)Commissioner Of Income-Tax (Central) vs Standard Vacuum Refining Co. Of India ... on 18 August, 1965
25. In this case the assessee has, in fact, capitalised the interest payments made before the factory started functioning and this is in accordance with the normal commercial and accountancy practice. We are not, however, inclined to base our decision on the said commercial or accountancy practice. We are of the view that as the statute has specifically used the expression "actual cost to the assessee" the interest payments made on the amounts borrowed for the purpose of acquiring the machinery can be taken to be an expenditure incurred by the assessee in acquiring the machinery and that will go to add to his actual cost of the machinery. We are inclined to agree with the decision of the Calcutta High Court in Commissioner of Income-tax v Standard Vacuum Refining Co, of India Ltd., already referred to, though we may not entirely agree with the reasoning given in that case.
The Income Tax Act, 1961
Section 208 in The Companies Act, 1956 [Entire Act]
India Cements Ltd., Madras vs Commissioner Of Income-Tax, Madras on 8 December, 1965
14. The learned counsel for the revenue, however, contends that the above decisions have overlooked the fact that the amount borrowed cannot be treated as an asset or advantage for the enduring benefit of the assessee's business and, therefore, the interest paid on the amount borrowed cannot be treated as cost of the capital asset. He refers to the decision in India Cements Ltd. v. Commissioner of Income-tax, . In that case the assessee had obtained a loan of Rs. 40 lakhs from the Industrial Finance Corporation by creating a charge on its fixed assets. In connection therewith it spent a sum of Rs. 84,633 towards stamp duty, registration fees, lawyer's fees, etc., and claimed the said amount as a business expenditure. The revenue contended that the said expenditure is of a capital nature and, therefore, could not be allowed as a deduction under Section 10(2)(xv) of the Income-tax Act, 1922. Rejecting that contention the Supreme Court held that the act of borrowing money was incidental to the carrying on of the business and the loan obtained was not an asset or advantage of enduring nature as the expenditure was made for securing the use of money for a certain period. The Supreme Court observed that a loan is a liability and has to he repaid and that, therefore, it is erroneous to consider a liability as an asset or an advantage of an enduring nature. According to the revenue if the interest paid on the money borrowed for the business cannot be treated as a capital expenditure, it cannot for the same reason be treated as cost of the machinery which is a capital asset.
M/S. Sitalpur Sugar Works Ltd vs Commissioner Of Income-Tax, Bihar And ... on 10 April, 1963
Mr. Balasubrahmanyan for the revenue also relied on the decision of the Supreme Court in Sitalpur Sugar Works Ltd. v. Commissioner of Income-tax, [1963] 49 I.T.R. (S.C) 160 in support of his contention that depreciation and development rebate cannot be allowed on the interest paid because no tangible asset was acquired nor any improvement was made to the machinery to increase its value by incurring the expenditure. In that case the assessee-company had a sugar factory at Sitalpur. As good quality of sugarcane was not available in sufficient quantities in that place, it shifted its factory to Guraul and in the process of dismantling the building and machinery and transporting and erecting them at Guraul incurred an expenditure of Rs. 3 lakhs and odd and claimed that amount as deduction under Section 10(2)(xv) of the Income-tax Act, 1922. It also claimed, in the alternative, that depreciation should be allowed on that amount under Section 10(2)(vi) if it were capital expenditure. The Supreme Court took the view that the expenditure having been incurred for the purpose of carrying on the concern with a greater advantage for the trade than it had, it should be taken as a capital expenditure but that no depreciation could be claimed because no tangible asset was acquired by the expenditure and no improvement was made in any capital asset in the sense that there was an increase in the value thereof.
Duple Motor Bodies Ltd. vs Inland Revenue Commissioners. Duple ... on 18 March, 1960
In Duple Motor Bodies v. Ostime, [1961] 1 W.L.R. 739, 747, 753 ; 39 T.C. 537 (H.L.), Viscount Simonds states :
Commissioner Of Income-Tax vs Challapalli Sugars Ltd. on 5 September, 1969
The decision in Commissioner of Income-tax v. Challapalli Sugars Ltd., , which also deals with interest payments made on the capital borrowed for the acquisition of machinery of course takes a different view. In that case it was held that the words "actual cost" in Section 10(2)(vi) of the Indian Income-tax Act, 1922, mean the sum of money which a person expends or lays out for acquiring the machinery and that it will not include the payment made towards interest on borrowed capital used for the acquisition of the machinery. But we are of the view that the said decision overlooks the significance of the words " actual cost to the assessee ". If the statute has merely used the word "actual cost" then it is possible to say that the interest payments in question cannot come in within the expression. The intention of the legislature in using the expression "actual cost to the assessee" appears to be to take into account the assessee's peculiar position at the time of the purchase of the machinery while granting allowance for depreciation and development rebate. Take for instance a person having enough finance to purchase the machinery. For him the actual cost of the machinery is what he pays out as the price of the machinery plus charges for freight, insurance, transport, etc. But where a person cannot acquire the machinery with his own funds but can do so only by borrowing, his actual cost of the machinery will normally include not only the cost price of the machinery plus incidental charges but also the extra expenditure which he has to incur in respect of the borrowing. Therefore, the cost of the machinery in the case of the latter will definitely be different. We have to, therefore, hold that the interest paid on the amounts borrowed for the purchase of the machinery has rightly been capitalised as part of the cost of the machinery and the Tribunal was right in allowing the assessee's claim for depreciation and development rebate. The first question is, therefore, answered in the affirmative and against the revenue.
Section 51 in The Income Tax Act, 1961 [Entire Act]
Commissioner Of Income-Tax vs Lothian Jute Mills Co. Ltd. on 6 April, 1965
26. The second question referred relates to the expenses incurred on foreign trips by the three directors and the engineers. It is claimed by the company that the said expenditure should be considered as part of the actual cost of machinery and depreciation and development rebate allowed thereon. This claim has been accepted by the Tribunal though it was rejected by the Appellate Assistant Commissioner. The Tribunal has taken the view that the foreign tours have been undertaken by the three directors and the engineer on various dates in connection with the acquisition of the plant and machinery, that some preliminary talks and visits to various factories abroad are necessary for the purchase of the machinery for the factory of the nature contemplated by the company for the first time in India, and that there can be no doubt that such expenditure is of a capital nature. The Tribunal purported to follow the decision in Habib Hussein's case, and Ambica Mills' case, [1964] 54 I.T.R. 167 (Guj.). The learned counsel for the revenue contends that the finding of the Tribunal that foreign tours have been undertaken by the directors and the engineer in connection with the purchase of the machinery is based on no evidence and that in fact the materials in the case disclose that the foreign tours were undertaken only for the purpose of getting the collaboration agreement from the West German firm. Sri L.G. Balakrishnan, one of the directors, made a trip to West Germany on May 31, 1960, and had expended Rs. 10,763. The above trip was long before the collaboration agreement which was entered into at Munich on 1st August, 1960, and, therefore, it should be taken that the trip was undertaken only for the purpose of choosing the foreign collaborator. Likewise the travel expenses of Sri L.G. Varadarajulu, another director, for his foreign trip on July 6, 1960, were incurred long before the date of collaboration agreement and, therefore, it should be taken to be only in connection with the collaboration agreement, and not for the purchase of the machinery. The subsequent two foreign trips by the said L.G. Varadarajulu were on March 31, 1961, and February 13, 1962. These trips were long after the collaboration agreement and are claimed to be specifically undertaken for the purpose of purchasing the machinery. On behalf of the revenue it is stated that under clause 4 of the collaborator's agreement, the scheme regarding the selection and purchase of the machinery will have to be processed by the collaborators and M/s. Matra Works, Frankfurt, have been entrusted with the supply of machinery required for the scheme, that the presence of the director in West Germany is not necessary for the purchase of the machinery and that, therefore, the expenses incurred by the director should be taken to be merely for supervision and not for purchase of the machinery. But, having regard to the fact that even if the collaborators have to give a scheme comprising all machineries required for the factory and their nominees, M/s. Matra Works, Frankfurt, have to supply the same, still the presence of the director cannot be said to be unnecessary. Even if the choice of the machinery has been left to the collaborators, inspection and supervision of the machinery before their despatch by the supplier at Frankfurt cannot be said to be unnecessary. If the two trips undertaken by this director on March 31, 1961, and February 13, 1962, were in connection with the acquisition of the plant and machinery then the assessee's claim has to be sustained.