1978 (6) TMI 26 - HC - Income Tax

Issues Involved:
1. Tribunal's Competence to Adjudicate Merits
2. Guarantee Commission and Stamp Charges as Part of Actual Cost
3. Interest on Unpaid Price as Part of Actual Cost
4. Tribunal's Justification in Considering Alternative Grounds
5. Essentiality of Interest Payment for Acquisition
6. Basis of Tribunal's Finding on Interest Payment
7. Tribunal's Direction to Re-decide Depreciation and Development Rebate

Summary of Judgment:

1. Tribunal's Competence to Adjudicate Merits:
The Tribunal was competent to go into the merits of the case and determine whether the expenditure relating to guarantee commission, stamp charges, and interest formed a part of the actual cost of the plant and machinery for the purposes of claiming depreciation and development rebate. The court found no specific provision in the Act or Rules that would limit the Tribunal's jurisdiction in this regard.

2. Guarantee Commission and Stamp Charges as Part of Actual Cost:
The Tribunal correctly held that the expenditure incurred by the assessee on payment of guarantee commission and stamp charges formed a part of the actual cost of the plant and machinery for the purposes of claiming depreciation and development rebate. This conclusion was supported by the Supreme Court's decision in Challapalli Sugars Ltd. v. CIT, which established that all necessary expenditures to bring assets into existence and put them in working condition should be included in the actual cost.

3. Interest on Unpaid Price as Part of Actual Cost:
The Tribunal erred in holding that interest on the unpaid price of plant and machinery on a deferred payment basis did not form a part of the actual cost of the assets to the assessee. The court held that such interest should be considered part of the actual cost, referencing the Gujarat High Court's decision in CIT v. Tensile Steel Ltd. and the Allahabad High Court's decision in CIT v. J. K. Cotton Spinning and Weaving Mills Ltd. The interest paid on deferred payment terms was integral to the acquisition of the assets and thus formed part of the actual cost.

4. Tribunal's Justification in Considering Alternative Grounds:
Given the court's answers to the primary questions, the alternative grounds raised by the assessee regarding the treatment of interest as revenue expenditure did not require determination.

5. Essentiality of Interest Payment for Acquisition:
The Tribunal's finding that payment of interest was not essential for the acquisition of plant and machinery was incorrect. The interest paid on the unpaid price of the plant and machinery on deferred payment terms was essential and formed part of the actual cost.

6. Basis of Tribunal's Finding on Interest Payment:
The Tribunal's finding that payment of interest was not essential for the acquisition of plant and machinery was not based on any material. The court held that the interest paid on deferred payment terms should be included in the actual cost of the assets.

7. Tribunal's Direction to Re-decide Depreciation and Development Rebate:
In view of the court's answers to the primary questions, the Tribunal's direction to the Additional Commissioner of Income-tax to re-decide the question of depreciation and development rebate did not arise for determination.

Conclusion:
- Question No. 1: In the affirmative.
- Question No. 2: In the affirmative.
- Question No. 3: In the negative. The interest paid on unpaid price of plant and machinery on deferred payment basis formed part of the actual cost of the assets to the assessee within the meaning of s. 43 of the I.T. Act, 1961, and for the purposes of claiming depreciation and development rebate it has to be treated as part of the actual cost of plant and machinery.
- Questions Nos. 4 to 7: Do not arise for determination.

The revenue shall pay the costs of the assessee.

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