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TMI Blog2014 (11) TMI 356X X X X Extracts X X X X X X X X Extracts X X X X ..... e addition made under Section 36(1)(iii) ignoring the fact that the assessee was not charging interest on funds given as loans and advances to its sister concerns/subsidiaries when there was no specific business purpose for which these interest free loans and advances were given; (3) Whether the Tribunal erred in law and fact in deleting the disallowance made by the Assessing Officer on account of expenses incurred on transmission lines and contribution paid to the Uttar Pradesh Power Corporation Limited "UPPCL", without appreciating the fact that, these expenses were in the nature of capital expenditure as they were for providing enduring benefits to the assessee and would remain an asset with the assessee for indefinite period, hence these were not deductible as per the provisions of Section 37 (1) of the Act; and (4) Whether the ITAT erred in law and facts in allowing appeal with respect to computation of book profit under Section 115JB of the Act made by the Assessing Officer as a result of disallowance of interest and other expenses under Section 14A of the Act amounting to Rs. 66,79,000/- in computation of book profit under Section 115 JB. Re Question No 1 The assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of total income and the expenses in the form of interest paid which were directly attributable to the exempt income would not be eligible for deduction by virtue of Section 14A of the Act, was factually not correct. The AO did not dispute the source of investment by the appellant in Dhampur Distillery Pvt Ltd. The appellant furnished evidence of raising fresh share capital during the year for the purpose of funding its Ethanol Unit. There is nothing on the record which could establish that the AO gathered any evidence to substantiate his funding that the appellant made investment in the share capital of Dhampur Pvt Ltd out of interest bearing funds. As a matter of fact, the AO applied the provisions of Section 14A without establishing the requirement of law. The provisions of Section 14A(2) lay down that, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act, then he shall not allow deduction in respect of such expenditure incurred by the assessee. The source of investment in the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scribed under the Rules, if the Assessing Officer is not satisfied with the correctness of the claim of the assessee. In the present case, the specific finding of the Tribunal is that as regards the disallowance of Rs. 67.75 lacs which was made under Section 14A by the Assessing Officer, the interest expenditure was attributable to the business of which the income was assessable to tax. Once this be the position, the view of the Tribunal is consistent with the provisions of Section 14A and does not warrant any interference. Re Question No 2 Insofar as this question is concerned, the Tribunal has observed that in Assessment Years 2003-04, 2004-05 and 2005-06, the same issue was before the Tribunal in regard to disallowances made by the Assessing Officer, of interest paid on borrowed funds. The learned counsel appearing on behalf of the assessee has placed on record a judgment of a Division Bench of this Court dated 28 April 2005 pertaining to the assessee in Commissioner of Income Tax, Lucknow Vs Dhampur Sugar Mills Ltd, Bijnor Income Tax Reference No 65 of 1996 which has been followed by another Division Bench in a judgment dated 16 December 2013 in Commissioner of Income Tax, Mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed above, the assessee has right to use the power line for transmitting power generated in its factory to UPPCL but it would not enjoy ownership right on the asset. The ownership on the asset would be with UPPCL in future. Thus, the assessee acquired right to make use of the asset for facilitating efficient conduct of its business and making it more profitable but without getting any advantage of enduring benefit to itself. He did not acquire any asset as envisaged in Section 32 of the Act. Therefore, the expenditure incurred was of revenue nature..." The view of the Commissioner (Appeals) has been confirmed by the Tribunal. Now, it is trite law as laid down by the House of Lords in British Insulated and Helsby Cables Ltd Vs Atherton [(1925) 10 TC 155 (HL)], that where an expenditure is made not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, there is very good reason, in the absence of special circumstances leading to an opposite conclusion, to treat it as an expenditure properly attributable not to revenue but to capital. In Empire Jute Co Ltd Vs Commissioner of Income Tax (1980) 124 ITR 1, the Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was sought to be distinguished on behalf of the revenue by contending that in that case, only a part of the expenditure was contributed by the assessee. We are unable to make any distinction based on that ground. The true test is whether the expenditure which has been incurred by the assessee is for the purpose of obtaining a commercial advantage in the capital field. In the present case, it is clearly evident that the power transmission lines which were laid by the assessee were, upon erection, to constitute the exclusive property of UPPCL. UPPCL was the only consumer of the electricity generated by the assessee.. The assessee incurred the expenditure to facilitate its own business. The fixed capital of the assessee was untouched and there was no capital accretion for the assessee. This was exactly the position before the Supreme Court in L H Sugar Factory (supra). At this stage, it would be appropriate for the Court to also make a reference to a decision of the Gujarat High Court in Commissioner of Income Tax Vs Gujarat Mineral Development Corporation (1981) 132 ITR 377 where the assessee had laid out an expenditure which was paid over to the Gujarat Electricity Board for laying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot was an advantage of an enduring nature, but applying the test culled out by the Supreme Court in Empire Jute Co's case (1980) 124 ITR 1, it is obvious that, in spite of the presumption, it can be held on the facts and circumstances of this case that the expenditure was not of a capital nature but was of a revenue nature." The decision of the Gujarat High Court has been confirmed by the Supreme Court in Commissioner of Income Tax Vs Gujarat Mineral Development Corporation (2001) 249 ITR 787. A similar principle has been laid down in a Division Bench judgment of the Madras High Court in Commissioner of Income Tax Vs Coats Viyella India Ltd (2002) 253 ITR 667, where the expenditure incurred by the assessee by way contribution to the government for building a new bridge for providing access to the factory of the assessee was held to be on the revenue account. The Madras High Court held as follows: Here, the bridge is one, which is built across the river. The bridge is not owned by assessee. It is built by the government, and the assessee does not acquire any rights of ownership over the bridge in the short-term or in the long run by reason of the contribution that it agreed to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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