M/S. J.K. Synthetics Ltd. vs Commissioner Of Income Tax
2011 Latest Caselaw 2684 Del

*              THE HIGH COURT OF DELHI AT NEW DELHI

                                 Judgment delivered on: 19.05.2011

+                               ITR No. 424/1992


M/S. J.K. SYNTHETICS LTD.                          ...... APPELLANT


                                    Vs


COMMISSIONER OF INCOME TAX                         ..... RESPONDENT

Advocates who appeared in this case:

For the Appellant  :     Mr. P.N. Monga & Mr. Manu Monga
For the Respondent :     Mr. N.P. Sahni

CORAM :-
HON'BLE MR JUSTICE SANJAY KISHAN KAUL
HON'BLE MR JUSTICE RAJIV SHAKDHER

1.     Whether the Reporters of local papers may        No
        be allowed to see the judgment ?
2.     To be referred to Reporters or not ?             No
3.     Whether the judgment should be reported          No
       in the Digest ?

RAJIV SHAKDHER, J (ORAL)

1. The captioned reference pertains to the Assessment Year

1983-1984. The reference has been made at the behest of the

revenue. We have been called upon to adjudicate upon the

following questions of law :-

(i). Whether on the facts and in the circumstances of the case, the ITAT was correct in law in allowing deduction for interest and insurance charges in respect of plant and machinery installed in the premises of M/s. J.K. Cotton Spinning and Weaving Mills Ltd.?

(ii). Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that 50% of the expenditure incurred by the assessee in connection with the Kamla Retreat was allowable as deduction in computing its income?

(iii). Whether on the facts and in the circumstances of the case, the ITAT was correct in law in holding that expenses of Rs.1,03,492/- for making kachcha road to a concrete road were revenue nature?

(iv). Whether on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the assessee was entitled of depreciation at 15% on plant and machinery installed in the SSF, Tyre Cord and Rayon units of the assessee?

(v). Whether on the facts and in the circumstances of the case, the ITAT was correct in law in holding that the assessee was entitled for depreciation @ 15% on additions to the plant and machinery of cement unit, on the ground that it was coming in contact with corrosive material?

(vi). Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the business of cement unit No.3 had been set up on 06.04.1982 and the expenditure incurred thereafter was allowable as revenue expenditure?

Question Nos.(i) & (ii).

2. In so far as question nos.(i) & (ii) are concerned, we note

that similar questions were returned unanswered by this court

while disposing of ITR No.286/1987 and ITR No.138/1988

respectively. We are informed that the questions in ITR

No.286/1987 and ITR No.138/1988 were returned unanswered

due to the fact that the amounts involved were small. In the

instant case, the amounts involved are once again miniscule.

The sum involved in question nos.(i) and (ii) are only Rs.38,484/-

and Rs.50,778/- respectively. Accordingly, these questions are

returned unanswered. As indicated above, this would result in

the Tribunal's finding being sustained.

Question No.(iii)

3. As regards question no.(iii), the finding of the Tribunal is

that the assessee had undertaken expenses in issue, for

providing a hard top on what was a kachcha road. The Tribunal

after deliberating on the matter and after considering the ratio of

the judgments passed in Laxmi Sugar Works, (1971)82 ITR 376;

T.C.C. Ltd. (1977) 106 ITR 900 and also the judgment in the case

of Empire Jute Co. Ltd. (1980) 124 ITR 1 came to the conclusion

that the expenses incurred by the assessee was not of a capital

nature and hence, the deduction ought to be allowed. Having

regard to the observations made by the Tribunal and the findings

of fact returned therein that the expense incurred to improve a

road by providing for a hard top, we concur with the view taken

by the Tribunal. Accordingly, the said question is answered in

affirmative and against the revenue.

Question Nos.(iv) & (v)

4. In so far as question nos.(iv) & (v) are concerned, these are

covered once again by a decision rendered by this court in ITR

No.286/1987 and ITR No.21/1996. The decision in ITR

No.286/1987 was passed on 07.01.2008, whereas the decision in

ITR No.21/1996 was passed on 16.08.2010. In both instances,

similar questions of law were answered against the revenue. A

similar position would thus prevail in respect of the question nos.

(iv) and (v) referred to in the captioned reference. Accordingly,

question nos. (iv) & (v) are answered against the revenue.

Question no.(vi)

5. Briefly, the question involves the categorization of interest

paid on debentures issued by the assessee.

6. It is the stand of the revenue that the interest should be

treated as capital expenditure, and accordingly, capitalized vis-à-

vis the value of the plant, for which debentures were issued.

7. On the other hand, the assessee argues to the contrary.

8. Having perused the orders of the authorities below, it is not

in dispute that the business commenced on 06.04.1982. It is also

not in dispute that the production of cement commenced on

18.12.1982. Mr. Sahni, who appears for the revenue, says that

since the production in the cement plant commenced from

18.12.1982, interest paid on debentures prior to the said date

ought to be capitalized.

9. Mr. Sahni points out that the total amount involved is a sum

of Rs.5,29,082/-. He is, however, not able to give us a bifurcation

of the amount in relation to the periods involved (i.e., what part

of the interest pertains to 06.04.1982 to 18.12.1982, and that

which pertains post 18.12.1982).

10. It appears on a reading of the observations made by the

CIT(A) in paragraph no.33.2 of its order that the sum of

Rs.5,29,082/- is interest paid by the assessee for the period

18.12.1982 to 31.12.1982. The relevant extract of the same

reads as follows :-

"....Further, he also disallowed Rs.5,29,082/- being expenses on account of interest on debentures (3rd series) incurred from 18.12.1982 to 31.12.1982."

11. Even though, Mr. Sahni disputes this position, he is not able

to give us an exact bifurcation as indicated hereinabove.

Therefore, according to us, if a sum of Rs.5,29,082/- has been

paid as interest by the assessee for the period 18.12.1982 to

31.12.1982, then in any case, this interest cannot be capitalized.

Even if we were to accept the argument of Mr. Sahni that a

portion of this interest was paid prior to 18.12.1982 but after

06.04.1982, we are not persuaded to hold that this interest can

be capitalized. The reason being that the business of the

assessee commenced on 06.04.1982. The CIT (A) in principle has

accepted this position in law by relying upon a decision rendered

by the Gujarat High Court in the case of Commissioner of Income

Tax, Gujarat-I Vs. Saurashtra Cement & Chemicals Industries Ltd.

(1973) 91 ITR 170 (Guj.). As a matter of fact, the CIT(A) has

quoted and applied the observations made by the High Court.

12. In the instant case the CIT(A) rejected the assessee's

appeal only on one ground, which was, was that in the books of

accounts interest on the debentures had been capitalized and

depreciation had been evidently claimed. The CIT(A) was of the

opinion that since this involved enlargement of the claim before

him, he had to confine the assessee to the claim made before the

Assessing Officer. Mr. Sahni found succour in the observation of

CIT(A) and consequently sought to advance his submission on

that very line.

13. We are, however, not persuaded by this stand adopted by

the revenue. In our considered view, once the facts are on record

and there is no dispute with regard to the facts in issue, the claim

if otherwise allowable in law ought to enure to benefit the

assessee. Accordingly, we are of the opinion that even if the

interest on debentures ran for the period from 06.04.1982 to

18.12.1982, it would have to be allowed as revenue expenditure

since the business of the assessee undoubtedly commenced on

06.04.1982. We are in respectful agreement with the principle

enunciated in Saurashtra Chemicals Ltd. case.

14. Mr. Sahni further contended that in case the court was not

persuaded by the stand of the revenue then in any case, the

depreciation claimed by the assessee will have to be withdrawn,

(if at all) the assessee had laid claim to the same. We are in

agreement with this submission of Mr. Sahni. The Assessing

officer shall, (while passing orders giving effect to the

observations made above) disallow the depreciation, if any,

claimed by the assessee.

15. With the aforesaid observations, the captioned reference is

disposed of. The effect of our judgment will have to be

undoubtedly, worked out by the Assessing Officer.

SANJAY KISHAN KAUL, J

RAJIV SHAKDHER, J

MAY 19, 2011 yg