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TMI Blog2008 (7) TMI 509X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Addl. CIT v. Akkamamba Textiles Ltd. [1997] 227 ITR 464 and CIT v. Sivakami Mills Ltd. [1997] 227 ITR 465? (ii) Whether on the facts and in the circumstances of the case the Tribunal has substantially erred in law in ignoring the ratio of the binding decision of the Supreme Court in the case of India Cements Ltd. v. CIT [1966] 60 ITR 52? (iii) Whether on the facts and in the circumstances of the case the Tribunal is right in law in its interpretation of the provisions of section 36(1)(iii), section 37 and section 43A of the Income-tax Act, 1961 read along with the Exchange Control Rules ?" 3. However, in Tax Appeal No. 19 of 2002 for the assessment year 1987-88 the court has reformulated the substantial question of law as under: "(i) Whether on the facts and in the circumstances of the case the Tribunal is right in law in its interpretation of the provisions of section 36(1)(iii), section 37(1) and section 43A of the Income-tax Act, 1961 read along with the Exchange Control Rules?" 4. The brief facts giving rise to all these tax appeals are that the appellant/assessee is a company in which public are substantially interested. The appellant is being regularly assessed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... text, all these appeals were filed by the appellant/assessee raising substantial questions of law as indicated above. 10. Mr. R. K. Patel learned advocate appearing for the appellant-assessee in all these appeals, has submitted that the appellant-company has obtained loans in foreign currency not for the purpose of acquiring fixed assets for the purpose of establishing new plant but for modernization and expansion of the existing business. Since the repayment of these loans was stipulated in instalments the appellant-company desired to ensure that the foreign currency required for payment of the loans be obtained at a predetermined rate and cost. Hence, the company had booked forward contracts for delivery of the required foreign currencies on the stipulated dates. The contract was entered into for the entire outstanding amount and delivery of foreign currency obtained under the contract for the instalment due from time to time. The balance value of the contracts, after deducting the amount withdrawn towards repayment, was rolled over for a further period up to the date of next instalment. As per the Exchange Control Rules, forward cover is available for a maximum period of six mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the original cost of the asset. If, however, the rupee liability is a decrease, instead of an increase, then, the original cost will be correspondingly reduced. He has, therefore, submitted that except for this purpose section 43A has no application. 12. He has further submitted that the appellant-assessee has claimed the expenses in question either under section 36(1)(iii) or under section 37 of the Act. In support of his submission he relied on the decisions of the apex court in the case of Addl. CIT v. Akkamamba Textiles Ltd. [1997] 227 HR 464 and CIT v. Sivakami Mills Ltd. [1997] 227 ITR 465 respectively. The apex court in these two cases held that guarantee commission paid to banker and insurance company for ensuring deferred payment of purchase consideration of machinery was admissible deduction under section 37 of the Income-tax Act, 1961. 13. Patel further relied on the decision of the apex court in the case of CIT v. Tata Iron and Steel Co. Ltd. [1998] 231 ITR 285, in which case at the time of repayment of loan there was fluctuation in the rate of foreign exchange as a result of which, the assessee had to repay a much lesser amount than he would have otherwise paid. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charges are nothing but commitment charges or in the nature of interest and hence the said expenses are admissible either under section 36(1)(iii) or under section 37 of the Act. He has, therefore, submitted that the questions formulated for the determination and consideration of this court are answered in favour of the assessee and against the Revenue. 17. Mr. K. M. Parikh, learned standing counsel appearing for the Revenue on the other hand has submitted that the judgments cited and relied upon by the assessee are clearly distinguishable as they relate to deductibility of deduction claimed under section 36(1) (iii) which does not draw any distinction between capital and revenue outlay. He has submitted that in view of Explanation 3 to section 43A, roll over charges paid are to be capitalized within the meaning of section 43A of the Income-tax Act, 1961. He has submitted that section 43A(1) opens with a non obstante clause, namely, "notwithstanding anything contained in any other provisions of this Act", therefore section 43A(1) overrides any other provisions contained in the 1961 Act including the provisions of section 36(1)(iii) of the Income-tax Act, 1961. He has submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount paid by way of roll over charges is in relation to the amount borrowed. The actual cost of asset has no relevancy in section 36(1)(iii) of the Act. The apex court has categorically held that the Legislature has not made any distinction in section 36(1)(iii) between "capital borrowed for revenue purpose" and "capital borrowed for capital purpose". Under section 36(1)(iii), the only requirement is that the assessee must borrow capital and the purpose of borrowing must be for business which is carried on by the assessee in the year of account. Both these conditions are satisfied in the case of the assessee. The amount was borrowed for modernization of the existing plant and business was carried on by the assessee during all these years. The balance value of the contracts after deducting the amount withdrawn towards repayment was rolled over for a further period up to the date of next instalment. Thus, roll over premium was paid to mitigate the risk involved in possible higher payment due to adverse fluctuation of the rate of exchange. Thus, the nature of expenditure involved was for the business purpose of raising loans on revenue account. The Revenue has disallowed the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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