9911796707
TMI Blog1997 (3) TMI 611X X X X Extracts X X X X X X X X Extracts X X X X ..... 1-92, the assessee had also claimed the expenditure on service line for tube division amounting to ₹ 13,45,000. The Assessing Officer disallowed the said expenditure by observing for the assessment year 1991-92 as under : The assessee has claimed pre-operative expenses of ₹ 1,65,32,446 as deductible business expenses in respect of its Seamless Tube project at Baramati. The assessee s factory is at Mundhwa and its new project is at Baramati. The assessee claims that though it is at distance of over 100 miles, the new unit is only a part and parcel of the old unit at Mundhwa, as the management is the same, the funds are interwined and as the products of old unit become the raw material for the new unit. These claims are not acceptable. The new project at Baramati is entirely a new unit, with an entirely new product to be manufactured. The pre-operative expenses including those on interest, etc., cannot be allowed as revenue expenditure and I hold that these are properly capitalised by the assessee. The deduction of ₹ 1,65,32,446 claimed is rejected taking into account the Explanation 8 to section 43(1) of the Income-tax Act, 1961. 3. On similar grounds, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion at Hospet. 6. As regards the common management, the CIT(A) admitted that Shri B.N. Kalyani and Shri B.B. Hattarki were whole-time Directors of the assessee-company. She, however, observed that they were also Directors of Kalyani Seamless Tube Ltd. (hereinafter in short referred to as KSTL), after the unit was transferred. She also noted that in 1989-90 and 1990-91, 539 and 555 persons were employed by the assessee-company. This number increased to 987 and 1043 in 1992-93 and 1993-94. When the tube division was transferred 330 employees of the assessee-company were also transferred to KSTL. She also observed that the information under section 217(2A)(b) of the Companies Act printed under the annual accounts for 1993-94 revealed the employment of specialists for the tube project, who were subsequently transferred to KSTL. With these observations, the CIT(A) concluded that the common management is also not established. 7. The CIT(A) further held that the existing steel division has not in any way been affected by the amputation of seamless tube division in 1994-95. She was of the view that the unit was apparently transferred to save the steel division from the embarrassment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indranathan Nair [1985] 152 ITR 138 (3)Waterfall Estates Ltd. v. CIT [1981] 131 ITR 207 10. The CIT(A), while deciding the issue has also distinguished the decision of the Pune Bench in the case of Bharat Forge Ltd. v. Dy. CIT [1995] 53 ITD 575 on the ground that in that case the company had undertaken a modernisation-cum-expansion in the existing premises in the same line of business with the idea of shifting to better technology. 11. The CIT(A) also observed that Explanation 8 to section 43(1) is attracted and setting up of the seamless tube division cannot be construed, but as another enduring asset and all interest prior to the operation cannot be held as capital. 12. Aggrieved, the assessee company has come up in appeal before us and has filed paper book No. 1 consisting of 374 pages. The assessee has also filed the additional evidence by way of a separate paper book No. 2 consisting of 85 pages. The learned counsel, Shri S.N. Inamdar submitted that the additional papers are in the nature of elaborating submissions on points made before the revenue authorities. He also submitted that although primary facts were already before the revenue authorities, certain ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esident (Purchase) was looking after the purchases of both the units. Mr. C.G. Patankar, Vice-President (Corporate Finance) was looking after the finance requirements of both the units. Also Mr. A.V. Inamdar (Associate-Vice-President Stores) looked after the stores department and all excise matters of both the units. Mr. G.R. Warty, Company Secretary was also looking after the secretarial and legal aspects of both the units. The export department of Kalyani Steel Ltd. (hereinafter referred to as KSL) was looking after the export marketing of the tube division as well. He, therefore, submitted that in view of the above, tests of common management, common business organisation and administration were satisfied. 16. As regards the common place of business, he submitted that the common Head Office at Mundhwa which controls affairs of both the units satisfy this test. In this regard, the learned counsel brought to our notice the decision of the Gujarat High Court in the case of CIT v. Alembic Glass Industries Ltd. [1976] 103 ITR 715. He submitted that all relevant tests are satisfied and the steel and the tube units constituted the same business. 17. The learned counsel continued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibited to do so as per the Controller of Capital Issues guidelines. Initially, therefore, it was advantageous to take up the project by the assessee company itself. 20. Unfortunately, the project cost escalated substantially due to the devaluation of rupee and went up to ₹ 271 crores. At the same time, due to changes in Government policies and liberalisation, imports of seamless tubes were freely permitted and imports for the domestic suppliers went down due to the removal of benefits from deemed export status etc. At the same time, steel making activity was also facing difficulties due to increase in cost of imported scrap and power and fuel cost. Moreover, entry was allowed for private sector companies in steel making directly from iron ore through blast furnace routes. It was, therefore, necessary for the company to go for steel making directly from iron ore through blast furnace route to survive competition in the steel business. At the same time, tube division was likely to incur substantial losses due to the factors mentioned above. The Management felt that if the tube division was continued in the company, it could have wiped out the net worth of the assessee compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions. He pointed out that same Personnel Manager had signed the letters for the employees working for steel and tube division. He also referred to the Clause in appointment letters stating that the employees can be transferred to any division of the company. He also referred to the certificates of the Chartered Accountants certifying that proceeds of both 1990-91 and 1992 issues were deposited in common cash credit account and that the profits of the steel division were used for repayment of the tubes division. For this purpose, on our requisition, books of account were produced before us. 23. Finally, the learned counsel fairly pointed out that out of claim of pre-operative expenses of ₹ 61,22,670 for the assessment year 1991-92, an amount of ₹ 18,31,525 was incurred in the earlier previous year and had been debited to project expenses account during the previous year relevant to the assessment year 1991-92. He, therefore, did not press for the allowance of this amount of ₹ 18,31,525 and restricted the claim for deduction of pre-operative interest and pre-operative expenses for both the years under consideration - minus - the sum of ₹ 18,31,525 for as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eel Ltd. and expenses of ₹ 18.31 lakhs were shown as project advance for the financial year 1989-90. (b)Separate finances were raised for the business of seamless tubes. (c)Even before the commercial production was started, tube division was transferred to a separate company. (d)The tube division was located at Baramati which is 100 kms. from Pune. (e)The seamless tube is a different product from steel. (f)Interest is provided on funds of steel (tube business) utilised by the assessee. (g)Separate independent accounts are maintained to the minutest details and separate books of account, journals, ledgers etc. are maintained for tube division. By drawing our attention to page 2, he pointed out that even in 1990 small things were purchased in the name of tube division. On page 3, he has drawn our attention to the fact that cash on hand of tube division has been separately shown. Page 8 of the paper book indicates that separate expenses for tube division have been mentioned. The rent of Bombay Office of tube division has also been separately shown. Even the consultant s fee has also been separately shown in the name of tube division. He also pointed out t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned senior departmental representative also disputed the claim of the company that the transfer of seamless tube division to a separate company was for assessee s benefit and strong business consi-derations. The learned senior departmental representative pointed out that the entire project was transferred only at cost. The project consisted of huge plot of industrial land at Baramati and substantial investments were made in building, plant and machinery. The assessee has not received any appreciation on the value of these assets from KSTL. The assessee would also have incurred huge cost in items of man hours and material for setting up the project. This part of the cost has also not been recovered. The assessee has not charged any interest on the outstanding consideration. In his view, therefore, the transfer was not for simple commercial considerations. He urged that the assessee had the intention of taking of the project into a separate company promoted by the assessee and the entire exercise of setting up of a project was done by the assessee to foster the project for an independent group company which has in fact become a subsidiary of the assessee company. The whole exerci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cash flow as commercial production of seamless tube division was not started. 40. As regards the additional manufacturing capacity created for catering tube activity rendering it idle, the learned senior departmental representative argued that even during the period before the seamless tube project was transferred, there was a steep decrease in the percen- tage of raw material supplied by the steel division. According to him, this indicates that the seamless tube project was not at all dependent on the assessee even for supply of raw material. 41. As-far-as the additional man power remaining with the assessee, the learned senior departmental representative urged that the entire additional man power was transferred to KSTL. 42. With reference to the argument that the equity base of the assessee company being expanded and the assessee being required to service the same, the learned sr. departmental representative countered the argument by saying that addition to equity base is compensated by the equity acquired by it KSTL. 43. As regards the steep fall in the market price of shares of the company, the learned senior departmental representative was of the view that this w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e only on the issue of intention of the assessee. 48. The learned senior departmental representative dealt at length on the decision of the Bombay High Court in the case of Manilal Dahyabhai ( supra) and other cases for the proposition that in order to constitute the same business, the separation of one business should affect the texture of the remaining business. He argued that the claim of the assessee on this ground alone requires to be rejected. 49. The learned senior departmental representative also referred to the judicial decisions cited by the assessee company before the CIT(A) and also before us. He attempted to distinguish the Supreme Court decisions in Prithvi General Insurance Co. Ltd. s case (supra ), Hoogly Trust (P.) Ltd. v. CIT [1969] 73 ITR 685, Produce Exchange Corpn. Ltd. v. CIT [1970] 77 ITR 739 on the ground that the Supreme Court has held that the test of the nature of two lines of business is not relevant in deciding whether they constitute same business. He also brought to our notice the decision of the Supreme Court in the case of Standard Refinery Distillery Ltd. (supra) in which it is held that the fact that the transactions one activity can be se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of CIT v. Belapur Co. Ltd. [1986] 161 ITR 516 / 27 Taxman 70 for his contention that expenses of a new unit are not allowable as revenue deduction. He, therefore, pleaded that the claim of pre-operative expenses be disallowed. He, therefore, prayed that on this issue, the decision of the learned CIT (A) should be upheld. 54. In reply, the learned counsel of the assessee has filed a detailed rejoinder consisting of 41 pages. Briefly, the learned counsel pointed out that the learned senior departmental representative has placed great reliance on the proposition that the assessee has submitted minutest details of expenses of tube division. He pointed out that the very same argument was advanced before the Supreme Court in the case of Standard Refinery Distillery Ltd. (supra). In that case, the assessee company was carrying on business of sugar manufacturing and distillery. The assessee claimed loss from trading in shares. The question was whether trading in shares and sugar and distillery constituted the same business. The learned counsel for the department had also argued before the Hon ble Supreme Court that the transaction of share business can be easily separated fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the tube project, he pointed out that it is not correct to view to the various events that have happened retrospectively and draw conclusion therefrom as regards intention. In the period between 1991 to 1994, substantial changes occurred in the business world due to devaluation, liberalisation and reduction in import duties etc. The various decisions had to be taken in the circumstance prevailing then and what is relevant is to see whether the decisions were taken at each stage for proper business and commercial considerations or not. He emphatically stated that the intention of the assessee company was to take up the tube activity as an expansion of the existing steel activity. The assessee itself has obtained all the requisite approvals. It was advantageous to implement the project in assessee company itself due to the following reasons. viz. : (i)Seamless tubes are forward integration of steel produced by the assessee company. It constitutes a value addition. Even the letter of intent issued by the Government of India stipulates that the steel and tube production shall be in an integrated manner. (ii)In view of the Government policies then prevailing the company did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of supplies to petroleum sector was withdrawn, price preference given to domestic manufactures was reduced substantially from optimum of 35% to 10% and on top of it terminal excise duty was levied. As a result, the contribution margin on tubes required in petroleum sector reduced substantially and products of the company became uncompetitive especially in comparison with imported tubes. Due to reduction in customs duty, imports became cheaper and hit the prices of indigenous production. 58. The cumulative effect of all these changes was that the tube project became unviable and was bound to make losses. The changed scenario not only affected the profitability of tube activity, but also affected the steel activity of the company. Steel activity was suffering due to heavy competition from cheaper imports on one hand and escalation in cost of imported scrap and power. At the relevant time, the assessee was also exploring proposals for the joint venture. The joint venture was possible only if tube division was separated into a separate company. Through the process of spin off to a separate company and public issue of shares by it, the debt portion of the project was reduced. Consequ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions up to 1996-97 were around ₹ 55 crores. The learned counsel also clarified that as a matter of fact the tax saving due to the claim of deduction of pre-operative expenses is only ₹ 3 crores as the assessee company does not have much of taxable income for the assessment year 1993-94 and onwards even before considering the claim of pre-operative interest and expenses. 62. As regards the alleged tax saving on land transferred to KSTL, the learned Counsel submitted that the value of the land was only ₹ 2.5 crores which is 1% of the total project cost of ₹ 270 crores. The land is in a rural area at Baramati and there was hardly any appreciation in its value. Moreover, the land is only lease-hold land and belongs to MIDC and is not owned by the assessee company. As against this, there was the fact of loss making potential of the division. The activity was transferred on a going concern basis. Any buyer of the assets has to take into consideration the yield on those assets which, in the present case, is negative. 63. The learned counsel further submitted that the assessee company suffered damage to its image on account of failure of the tube projec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ributable to tube division was debited to project expenses account in the said common ledger through a journal entry. The learned counsel produced the bank accounts for our verification and showed the entries regarding these payments. 67. The provident fund trust, gratuity trust and superannuation trust was single and common for both the divisions. The same set of employees were also operating all the bank accounts of the company. From these factors, therefore, the test of commonness of the management is proved beyond any doubt. 68. He further pointed out that the commonness of the funds is also demonstrated by the facts on record. The equity capital raised in 1991, 1992 and 1994 was common. The issue in 1992 was to finance the requirements of both steel and tube divisions. Further following factors also prove the commonness of the fund, namely :- (i)the debenture issue was common, (ii)proceeds of equity and debenture issues were deposited in cash credit account of steel division. The cash credit accounts were produced before us for verification. The assessee also filed certificate of Chartered Accountants, (iii)payment of salary is from cash credit account o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther pointed out that fees for increase in authorised capital are disallowed by courts on the ground that capital framework is altered. Same analogy applies in the present case. Further the enhanced equity has closed all options for the company to raise further equity capital. 72. The learned counsel continued and urged that the failure and the transfer of tube division has caused the big set back to the image of the company in business world. This is manifested by the huge fall in the market price of shares of the company from ₹ 325 in 1992 to ₹ 32 in 1997. If, on the other hand, the tube project had succeeded, it would have given a tremendous boost to the company. 73. He also urged that the enhanced capital and servicing from income of only steel activity has resulted in a sizeable fall in Earning Per Share (EPS) and thereby again a fall in the market price of the shares. This has resulted in erosion in market capitalisation of shares in the Stock Exchange. 74. He also pointed out that as a result of the transfer of tube division, there has been a reduction in transfer of steel to tube project. It is true that the initial fall was due to change in product mix ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a different product from the steel, the learned counsel pointed out that seamless tube is nothing but a hollow steel round which is produced by steel division. 81. Thereafter, the learned counsel proceeded to deal with the judicial decisions relied upon by the learned senior departmental representative. With reference to the decision of the Bombay High Court in the case of Manilal Dahyabhai (supra), he pointed out that this decision is not a good law as it is impliedly overruled by the Supreme Court in the case of Hoogly Trust (P.) Ltd. (supra). In this connection, he referred to page 691 of the said decision of the Supreme Court. 82. The learned counsel also dealt with the decision of the Allahabad High Court in the case of Laxmi Rattan Cotton Mills (supra). He pointed out that in this case, the High Court has relied upon the decision of the Calcutta High Court in the case of Standard Refinery Distillery Ltd. v. CIT [1965] 55 ITR 139 . He brought to our notice that this decision of the Calcutta High Court has been reversed by the Hon ble Supreme Court in the case of Standard Refinery Distillery Ltd. (supra). As a consequence, the decision of the Allahabad High Court is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as carried on has to fail on facts. The learned counsel pointed out that the decision is on specific facts that common funds were not established. He also stated that the decision in the case of Waterfall Estates Ltd. (supra) is followed by the Madras High Court in Blue Mountain Estates Industries Ltd. s case (supra). However, the Madras High Court itself in S.S.M. Ahmed Hussain s case (supra) and R.M. Maruthai Naidu Sons case (supra) observed that the Blue Mountain Estates Industries Ltd. s case (supra) decision was on specific facts and did not apply to the above decision. The Supreme Court has merely approved the decision of the High Court which is on specific facts that evidence regarding commonness of funds and management was not on record. The decision is, therefore, not relevant. 86. The learned counsel then brought to our notice the decision of the Madras High Court in the case of R.M. Maruthai Naidu Sons (supra) and pointed out that this is a case of deduction u/s 36(1)(iii) of the Income-tax Act in respect of loans for transport business which was close, from income from Cigar business was allowed. In this case, two activities, namely, Cigar and transport ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uted same business . On a perusal of the facts of the case of the assessee-company as well as the judicial decisions relied upon by both the parties to the dispute, we find that this question is essentially one of facts and has to be decided on the basis of facts of each case. The study of the judicial decisions of the Hon ble Supreme Court and various High Courts shows that the said decisions have laid down that to decide the issue of same business , the most important tests are : (i)Unity of control; (ii)Existence of common management; (iii)Common business organisation; (iv)Common administration; (v)Common funds; and (vi)Common place of business. The Supreme Court in the case of Prithvi Insurance Co. Ltd. (sapra) has clearly laid down the tests for deciding this issue. On page Nos. 637 and 638 of the decision, it was held : We are unable to agree with the Tribunal, that, because in respect of the life insurance business and general insurance business there are special methods of computation of income for the purpose of levying Income-tax, they are not the same business within the meaning of sec. 24(2). A fairly adequate test for dete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave also examined the decision of the Madras High Court in the case of Blue Mountain Estates Industries Ltd. (supra) relied upon by the learned senior departmental representative. This case was also decided on the ground that the various tests, except the test of unity of control were not established. Moreover, the Madras High Court itself as in a later decision in the case of S.S.M. Ahmed Hussain (supra) specifically observed that the decision in the case of Blue Mountain Estates Industries Ltd. (supra) was on its specific facts, and in no way departed from the tests laid down by the Supreme Court. The relevant observations at pages 532 and 533 are as follows : Learned counsel appearing for the revenue has, however, argued that from the two decisions, this Court has read the above Supreme Court decisions in a different way. He has relied on a decision of this Court in CIT v. Blue Mountain Estates Industries Ltd. [1985] 151 ITR 616 . The decision will show that this Court adopted the test which was laid down by the Supreme Court, but on the facts reached a different conclusion. ****** What is, however, important is that even in this decision, this Court has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchase orders of tube division were signed by Shri S.V. Sirsikar; (4)Copies of purchase orders of Steel division were also signed by the same gentleman; (5)Copy of the letter dt. 21-11-90 addressed to the United Westerb Bank Ltd. regarding payment to M/s M.D.H., Germany which is a technical collaborator for the tube project was signed by Shri P.G. Chitale, Managing Director; (6)Copy of the letter signed by Shri P.G. Chitale, Managing Director addressed to the Bank of Baroda, Madras Branch for opening of a current account with them; (7)Copy of the contract between Kalyani Steel Ltd., and M.D.H., Germany, for supply of machinery for tube project was signed by Shri B.B. Hattarki for and on behalf of Kalyani Steel Ltd. (8)Copy of the letter dt. 15-9-1992 addressed to ICICI was signed by Shri B.B. Hattarki, Jt. Managing Director for soliciting disbursement of Bridge Loan of ₹ 200 Million. The Bridge Loan was in respect of the issue made in 1992. 96. We also find from the facts of the case that payment of salaries of all the employees was made through a single salary register and from a common cash credit account. The entire salary was first deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Madras High Court did not consider this to be relevant while deciding the issue of same business . In our view, the assessee-company has placed adequate evidence on record to show that there was commonness of management and administration. We, therefore, hold that this test is satisfied in the case before us. 99. The next important test is that of commonness of fund. To recapitulate brief, the learned senior departmental representative has asserted that there was no commonness of funds, except the use of the spare funds of tube division by steel division. However, we find from the evidence produced before us that commonness of funds between the two divisions is established beyond any doubt. The issue of partly convertible debentures in October 1992 was to finance the requirements of both the steel as well as tube division. This is clear from the copy of the Prospectus at page 157 of the Paper Book No. 1 which reads as under : Clause IV. Particulars of the issue AS : OBJECTS OF THE ISSUE The company is setting up a Seamless Pipe Project at Baramati, Distt. Pune, Maharashtra. The original project cost for the same as appraised by the Industrial Credit Investm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Million) 1)Transferred from Citibank N.A. to the Cash Credit a/c of Kalyani Steels Ltd. with Bank of Baroda, Fort University Branch, Mumbai104.00 2)Transferred from Citibank N.A. to the Cash credit a/c of Kalyani Steel Ltd. with Bank of Baroda, Subhashnagar Branch28.00 Pune 3)Utilised for making investments in securities489.70 4)The balance were utilised in meeting the Issue and other expenses relating to the Company. 100. We, therefore, find from the facts of the case that payments of both steel and tube divisions were made out of common cash credit account of the assessee company. We also find from the facts of the case that substantial payments of project expenses of tube division were met out of cash credit account of the steel division. In this regard, we have seen the relevant documents which were presented before us. The extract of the specimen entries shown to us is reproduced below: The following is the certified extract of the cash credit bank book which was produced before the Tribunal in connection with the appeal for assessment year 1991-92 Voucher/Bank ofCanaraUnited Par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te reads as under : This is to certify that the repayment of the following loans taken for the purpose of the Seamless Tube Division of M/s Kalyani Steels Ltd. was made from the cash credit accounts with Bank of Baroda, Fort University Branch, Mumbai and Corporate Banking Branch, Pune during the period from January 1993 to December 1994. (Rs. in Million) (1)ICICI Rupee Term Loan 25.00 (2)Short term loan from Bank of Baroda 3.75 (3)ICICI Short term loan 200.00 The term Loan from Union Bank of India also taken for the purpose of the Seamless Tube Project of M/s Kalyani Steels Ltd. aggregating ₹ 2.50 Million was repaid from the cash credit account with Union Bank of India, Karve Road, Br., Pune. The sales realisations of the steel division have been deposited in these cash credit accounts. 103. We have also gone through the facts of the case regarding inter-lacing of accounts between the two divisions running nearly to ₹ 200 crores over a period of three financial years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the receipts in respect of one of them being utilised for the purpose of the other and that the terms of overhead and other expenses were common. It was held that the aforesaid factors did not necessarily lead to the inference that the businesses must be regarded as one and the same. It was observed that though not conclusive but an important test was whether one of the two businesses conducted by the assessee could be stopped without affecting the texture or frame work of the other. However, in CIT v. Prithvi Insurance Co. Ltd. this court said: We are unable to agree with counsel for the Commissioner that the test, whether one of the businesses can be closed without affecting the conduct of the other business, is a decisive test in determining whether the two constitute the same business within the meaning of section 24(2) ....... In our view, therefore, the adverse effect on the texture of the business, if one of them is closed is not a decisive test. 106. In fact, the Madras High Court in the case of S.S.M. Ahmed Hussain (supra) has clearly laid down. It must now, therefore, be taken as established that the test whether the cessation of one activity will affect the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it is rather harsh to say that an assessee could visualise all these problems 4 or 5 years back and if so, the company would not in fact have set up the project itself. In our view, therefore, it is wrong to attribute any motives in this regard. 108. As regards saving of capital gains tax on land transferred to KSTL, we find that the land in Baramati is located in a rural area and was a lease- hold land. It also constituted only 1% of the project cost. The unit was transferred as a going concern along with its problems and potential of making substantial losses, as it is evident from the results of the subsequent years. In the light of this, the transfer value was, in our view, fair and the transfer was for valid commercial considerations. No motive of tax saving, therefore, can be attributed to the assessee company. As a matter of fact, if tax was the only consideration, the tube division would not have been transferred as it had incurred substantial losses and substantial depreciation was to be allowed, which could be set off against the income of the assessee company. It would, therefore, have been beneficial to the assessee company not to spin off the tube division. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Ltd. v. CIT [1994] 208 ITR 941/ (Cal.) (7)Shahibag Entrepreneurs (P.) Ltd. v. CIT [1994] 210 ITR 998 (Guj.) (8)CIT v. Great Eastern Shipping Co. Ltd. [1979] 118 ITR 772 (Bom.) (9)CIBA of India Ltd. s case (supra) 113. As regards the alternative submission of the learned senior departmental representative that in any case interest on borrowings for tube division relatable to the period before the assets of the tube division are put to use must be capitalised as actual cost of the assets of the tube division, in view of Explanation 8 to sec. 43(1) of the Income-tax Act, we have examined the provisions of the said Explanation 8 to sec. 43(1) which reads as under: Explanation B: For the removal of doubts, it is hereby declared that where any amount is paid or is payable as interest in connection with the acquisition of an asset, so much of such amount as is relatable to any period after such asset is first put to use shall not be included, and shall be deemed never to have been included, in the actual cost of such asset. 114. The Explanation was brought on statute book to prevent the mischief of capitalisation of future interest by certain classes of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i), separate treatment should be given for other expenses, such as salaries, travelling etc. which may be regarded as having incurred for acquisition of capital assets and for putting these assets into operation and hence are capital in nature has also no relevance. The learned senior departmental representative has tried to distinguish the decision of this Bench in the case of Bharat Forge Ltd. in M.A. (supra) and also in the case of Prav Electrospark (P.) Ltd. (supra). The learned senior departmental representative has heavily relied on the decision of the Bombay High Court in the case of CIBA of India Ltd. (supra) and in the case of Belapur Co. Ltd. (supra ). These decisions were considered by us in the case of Prav Electrospark (P.) Ltd. (supra) In the said decision, we have laid down : We have examined the details of the expenditure available in the paper book and have also considered other relevant facts and circumstances of the case and find that it would be only just and proper to allow whole of this expenditure as revenue expenditure. It is not disputed by the department that the expenditure had been incurred for expansion of the existing unit. Therefore, to the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) in para 22.3 of her order has accepted that the expenses on high tension lines are revenue in nature since ownership of these lines is with the M.S.E.B. and not with the assessee. She however, negatived the claim of the assessee only on the ground that the two activities of the assessee s business do not constitute the same business . Since we have given a finding that steel and tube division constitute same business, this plea of the revenue does not survive and accordingly we hold that the expenses on high tension line is deductible as revenue expenditure. We, therefore, direct the revenue to exclude the sum of ₹ 13,45,000 being the expenditure on high tension line as it is revenue expenditure. Similarly, the pre-operative interest of ₹ 1,04,09,776 in assessment year 1991-92 and ₹ 4,36,87,651 in assessment year 1992-93 are fully allowed. Out of pre-operative expenses of ₹ 61,22,670 for the assessment year 1991-92, a sum of ₹ 18,31,525 was incurred in the earlier years and hence is not deductible while computing the income of the assessee for the assessment year 1991-92. However, the balance amount of pre-operative expenses of ₹ 42,91,145 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt case, she observed that the exchange fluctuation is not on account of actual remittance, but on account of re-statement/adjustment of the liability as at the end of the year. She, therefore, rejected the claim of the assessee. 122. Before us, the learned counsel of the assessee has submitted that as per the definition of the word paid u/s 43(2) of the Income-tax Act, the same includes the amount actually paid or incurred as per the method of accounting followed by the assessee. He further argued that it is not necessary that the exchange fluctuation should be on account of actual remittance. In this regard, he brought to our notice the decision of the Bombay High Court in the case of Baker Mercer India (P.) Ltd. (supra). He argued that in the said decision, the Bombay High Court has held that when an assessee had acquired an asset from a country outside India for the purpose of his business and in consequence of the change in the rate of exchange at any time after acquisition of such asset, there is an increase in the liability of the assessee as expressed in Indian currency for making payment towards cost of the asset or for repayment of the whole or a part of the money bo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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