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TMI Blog2006 (3) TMI 263X X X X Extracts X X X X X X X X Extracts X X X X ..... ancy expenses. The authorities below rejected the claim of the assessee that these expenditures were revenue in nature on the ground that the refractory project and its manufacturing of storeware pipes were not similar though there was common management and mixing of funds etc., and they being totally individual set of activities, the expenditure incurred was capital in nature. The Supreme Court in the case of CIT v. Associated Fibre Rubber Industries (P.) Ltd. [1999] 236 ITR 471 had held that interest on borrowal for expansion is an allowable expenditure. The Karnataka High Court had allowed expenditure incurred towards expansion in the case of CIT v. Hindustan Machine Tools Ltd. (No. 1) [1989] 175 ITR 212. For the reasons that there may be unity of control, common management and utilisation of funds for purposes of expansion of the same line of activity, the Madhya Pradesh High Court has upheld the claim in the case of CIT v. Malwa Vanaspati Chemicals Co. Ltd. [1997] 226 ITR 253. There are Tribunal decisions which have upheld the claim of the assessee such as fertiliser company starting a cement factory, chemical factory putting up a fertilizer unit etc. Apparently there are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t character and the business has not commenced, the expenditure on acquisition of the asset is capital expenditure. Pre-operative expenses and financial consultancy charges for acquisition of a new business of the assessee cannot be considered as admissible revenue expenditure because the expenditure in question is with a view to bringing an asset, that is a new asset, or an advantage for the enduring benefit of the assessee. He, therefore, upheld the addition. In view of the alternative ground regarding the applicability of section 35D to pre-operative expenses and financial consultancy charges the Commissioner (Appeals) was of the view p that they required to be examined by the Assessing Officer. To that extent herestored the issue to the Assessing Officer. In my view the order of the Commissioner (Appeals) is perfectly justified. The assessee has taken the alternative ground before the Commissioner (Appeals). For that limited purpose he has sent the matter back to the Assessing Officer to examine the applicability of section 35D to pre-operative expenses and financial consultancy charges. Therefore, in my view, the order of the Commissioner (Appeals) is to be upheld. To that ext ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (4), I frame the points of difference in the five appeals as below and appoint the Zonal Vice President as Third Member, for dealing with cases in accordance with law: 1. I.T.A. Nos. 955 1851/Mds/1995 Asst. Years: 1994-95 1995-96 M/s. MAC Industrial Products, Chennai vs. Asstt. Commissioner of Income-tax. "Whether, on facts and in the circumstances of the case, impugned order of CIT (Appeals) on pre-operative expenses and interest is to be confirmed or appeal of the assessee is to be allowed?" 2. ITA No. 717/Mds/1998 Asst. Year: 1996-97 Dy. Commissioner of Income-tax, vs. Shripet Cybertech Systems Ltd., Chennai. "Whether, on facts and in the circumstances of the case, appeal of the revenue is required to be allowed in part, as held by the learned Sr. Vice President or is to be fully allowed, as held by the learned Judicial Member?" 3. WTA Nos. 316 to 318/Mds/1997 Asst. Years: 1990-91 to 1992-93 Mrs. Umayal Ramanathan, Chennai vs. Asstt. Commissioner of Income-tax. "Whether, on facts and in the circumstances of the case, the amount advanced to the companies in dispute is liable to be added in the wealth of the assessee on the valuation date, as held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tension of the existing business. Ex consequenti the claim was disallowed. 4. Being aggrieved, assessee preferred appeal before the CIT(A). It was contended that for constituting the expansion of the existing business, decisive test is unity of control and not the nature of business. To buttress the claim that it was only expansion of business assessee did file only certificate of Managing Director before the CIT(A). No other evidence was adduced in this regard. Evidence in the nature of certificate was held to be mere ipse dixit. As such the claim of the assessee was rejected. 5. Ld. Sr. Vice President applied the principle laid down by the Apex Court in the case of Vegetable Products Ltd. In this case Hon'ble Supreme Court has held that "If the court finds that the language of a taxing provision is ambiguous or capable of more meanings than one, then the court has to adopt that interpretation which favours the assessee, more particularly so where the provision relates to the imposition of a penalty." Law is trite on the subject that if the provisions of a taxing statute are clear and unambiguous, full effect must be given to them irrespective of any consideration of equity. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the tune of Rs. 24,59,333 is allowable as a revenue expenditure?" In deciding the issue the Hon'ble High Court has held that the interest paid on amounts borrowed for acquiring capital asset is revenue expenditure. This finding was given in accordance with the decision of the Apex Court rendered in the case of Associated Fibre and Rubber Industries (P.) Ltd. 9. The decisions relied on by the learned counsel for the assessee were rendered in a different context. In the case of Associated Fibre Rubber Industries (P.) Ltd. machinery was not put to use. It was treated as business asset. Hon'ble Supreme Court has held that the interest paid on the amount borrowed for purchase of such machinery was a deductible amount. It was in the context of existing business, as such facts of the present case are not matching with the facts of Associated Fibre and Rubber Industries (P.) Ltd.'s case. 10. Coming now to the decision of the jurisdictional High Court rendered to the case of in Arroran Sugars Ltd., I find that it was rendered prior to the decision in the case of E.I.D. Parry (India) Ltd. It was in the context of section 256(2) where the jurisdiction of the court is limited whereas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view taken by the ld. Judicial Member in this regard. 14. One more aspect remains to be adjudicated in regard to the interest payment to Madras Metropolitan Development Authority. This issue was not decided by the ld. Sr. Vice-President. He impliedly decided this issue by allowing the appeal. The ld. Judicial Member held that the expenditure was incurred for acquisition of an asset of permanent nature. It gives an enduring benefit to the assessee. As such it should be capitalized and be considered for depreciation claim. I agree with the ld. Judicial Member on this aspect also. 15. The matter will now go before the regular Bench for deciding the appeal in accordance with the majority. ORDER Per N. Vijayakumaran, Judicial Member. - Since there was difference of opinion among the Members who originally heard the above appeals, the Hon'ble President has framed the point of difference as under for being dealt with by the Third Member "Whether, on the facts and in the circumstances of the case, the impugned order of the CIT (Appeals) on pre-operative expenses and interest is to be confirmed or the appeal of the assessee is to be allowed?" The Hon'ble Third Member has concurr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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