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TMI Blog2008 (4) TMI 704X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Dy. CIT v. Core Health Care Ltd.[ 2008 (2) TMI 8 - SUPREME COURT] , Bombay High Court in the case of CIT v. Tata Chemicals Ltd.[ 2002 (4) TMI 42 - BOMBAY HIGH COURT] and the Madras High Court in the case of Carborandum Universal Ltd. [ 2006 (2) TMI 649 - MADRAS HIGH COURT] among other decision, they held that if the borrowings is for the purpose of business and is utilised in the business, interest payable thereon is an allowable business expense. The ratios of judgments on such treatment of interest cost as deferred revenue in the books and writing off the same under Income-tax Act, is not prohibitive and is an allowable expenditure. Therefore, the interest so written off in tax computation is allowable expenditure irrespective of its treatment in the books of account by the assessee since project has to be considered as substantially completed and post that date interest has to be allowed as revenue expenditure irrespective of the fact that the same has been capitalised by the assessee in the books of account. We find that the lower authorities have not examined this issue in detail and the facts are not before us to enable us to decide on this issue, we, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss is carried on and, therefore, would constitute plant and will be entitled to depreciation at 25 per cent. We also find that the CIT u/s 263 had proposed to revise the assessment in the immediately preceding AY 2000-01, for granting depreciation on roads, bridges, etc., of the assessee at the rate applicable to building, viz., 10 per cent instead of 25 per cent applicable to Plant and machinery granted by the AO in the assessment. After examining the submissions of the assessee, the CIT came to the conclusion that there was no error in the order of the AO granting depreciation for these assets at 25 per cent and thereby dropped proceedings u/s 263. Thus, we allow the assessee s appeal on this issue - In the result, the assessee s appeal is allowed. - D.K. SRIVASTAVA, ACCOUNTANT MEMBER SMT. ASHA VIJAYARAGHAVAN, JJ H.N. Shah :for the Appellant Chet Ram :for the Respondent. ORDER Per Smt. Asha Vijayaraghavan, Judicial Member. - This appeal is filed by the assessee. The relevant assessment year is 2001-02. The appeal is directed against the order of the CIT(A)-V, dated 7-3-2005. The appeal arises out of the assessment completed under section 143(3) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31-3-2001 on this account is ₹ 6,088.05 lakhs which has been shown under miscellaneous expenditure (to the extent not written off or adjusted) as Deferred Interest Cost during gestation period in the balance sheet. The CIT(A) following the earlier year order confirmed the disallowance of interest. 6. Aggrieved the appellant is on appeal before us. From the records, we find that the assessee has filed an appeal before the Income-tax Appellate Tribunal, for the assessment year 2000-01 against the disallowance of interest paid to bonds of ₹ 97,37,43,270. But before the Tribunal, the appellant did not press the claim for interest paid on bonds. However, there is no res judicata on the matter of legal interpretation. 7. We have heard the rival submissions. The assessee is a Government of Maharashtra owned Public Sector Undertaking and has carried out the business of construction, operation, maintenance, etc., of the road, bridges, rail over bridges (ROBs), express highways, flyovers, ceiling projects, etc., and as a revenue source it is having toll and other incidental income generated by the said assets. Since it is an infrastructure company, requiring huge funds to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel for the assessee submitted before the CIT(A) that the flyovers, roads, bridges, express highway, ROBs, etc., are the assets with which the business of the assessee is carried on. Hence, they are treated as Plant. 13. In assessee s own case for the assessment year 2000-01, the Commissioner invoked the powers under section 263 of the Income-tax Act as the Assessing Officer allowed 25 per cent for the assessee treating them as Plant. Since the CIT-V issued show-cause notice and served upon the assessee to explain as to why the order under section 143(3), dated 20-2-2003 for assessment year 2000-01 passed by the Assessing Officer should not be treated as erroneous and prejudicial to the interest of the revenue. 14. The CIT(A) for this assessment year confirmed the order of the Assessing Officer and fixed the rate at the rate of 10 per cent. 15. Aggrieved, assessee preferred an appeal before the Tribunal on the following grounds: 1.The CIT(A)-V, Mumbai has erred in rejecting the claim of the appellant that the interest paid on bonds amounting to ₹ 60,88,05,000 and bond issue expenses of ₹ 1,05,48,537 be allowed as revenue expenses while confirming the stan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 ITR 192. They are the vital assets through which alone the assessee could run its business and through which the assessee had been carrying on its business in the past and shall continue to do so in future as well. The assessee had claimed depreciation in respect of office buildings only at the rate of 10 per cent as they are mere buildings and they are not a part of the assessee s plant. However, as the assessee had been carrying on its business with the help these very plants, i.e., flyovers, ROBs, express highway, roads, bridges, etc., the assessee has chosen to claim the depreciation at the rate of 25 per cent. These assets are such which would otherwise also refuse to be part of any building , howsoever big in structure or size, to admit depreciation at the same scale as that of buildings in general in fact these structures are subjected to the toughest and roughest use by the vehicular traffic round the clock throughout the year. As a result, these structures call for up to date state-of-art maintenance to avoid any disruption and/or dislocation of the vehicular traffic. In fact not only the construction cost of these assets but also the maintenance cost are so high that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... customers and duly reflected in the accounts. Thus, these items of assets essentially fulfil all the possible criteria prescribed for being plant. As to the specific tests prescribed for the purpose, namely, as to whether they fulfil function of plant in the assessee s business, whether they are the tools of the taxpayer and also, if yes, representing capital investment by the assessee for the generation of revenue, the ld. counsel strongly asserted that the assessee cannot be made to fail on any of these counts particularly when it has been created by the Government of Maharashtra for the specific purposes which are the subject-matter of dispute in this specific proceeding. As further submitted by him, a plant within the meaning of section 43(3) of the Income-tax Act, 1961 must be an object or article which must satisfy a dual test; it must bear both physical and functional characteristics of an asset like books. The flyovers/bridges/ROBs are having both physical and functional characteristics and, hence, they have been treated as Plant by the assessee as they are functionally useful to the assessee for carrying on its business. The assessee has deliberately refrained from treatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow in the shape of documents, drawings, etc., fall within the definition of plant . 20. The House of Lords in the case of IRC v. Barclay Curle Co. Ltd. [1970] 76 ITR 62 has held that a dry dock was a plant. They observed that the dry dock is not the mere setting or premises in which the ships were repaired. It was different from the factory which houses machinery, for in the operation of the dock, the dock itself played a part in the control of water and enabled the valves, pumps and electricity generator, which were an integral part of its construction, to perform their functions. The dock was not a mere shelter or home but itself played an essential part in the operation which took place in getting a ship into the dock, holding it securely and then returning it to the river. 21. The Apex Court in the case of CIT v. Anand Theatres [2000] 244 ITR 1921 had occasion to consider and interpret where plant in the context of a cinema theatre, the Supreme Court, approving the observations in the case of Benson v. Yard Arm Club Ltd. [1979] 1 WLR 347 (CA) held that- A characteristic of plant is that it is an adjunct to the carrying on of a business and not the essential site or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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