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TMI Blog1995 (5) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction of a sum of Rs. 9,148.50 representing interest paid to the Government of Tamil Nadu for allotment of an industrial unit under section 37 of the Income-tax Act, 1961, for the assessment year 1973-74 ? " The facts of the case are as follows : The assessee is an individual and the matter relates to the assessment year 1973-74 the corresponding accounting year being the period from April 1, 1972 to March 31, 1973. The assessee carries on the business of manufacture and sale of industrial thermostats under the name and style, Labequip Instrument Corporation. He commenced the said business in 1968 and carried it on in a place in Triplicane High Road, Madras. The Government of Tamil Nadu formed a functional industrial estate for instru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... towards principal and Rs. 3,449 towards interest). The second and third instalments due on July 10, 1972 and January 10, 1973, were paid by the assessee on October 14, 1972, and March 31, 1973, respectively. Consequently, penal interest amounting to Rs. 327.50 and Rs. 81 was collected along with these two instalments. For the assessment year 1973-74, the assessee filed a return disclosing a business income of Rs. 20,962. In doing so, he had deducted Rs. 11,127 being the interest paid by him to the Government of Tamil Nadu. The Income-tax Officer held that the assessee could not be said to have borrowed capital for his business and hence the interest paid to the Government of Tamil Nadu was not allowable. By his order dated December 15, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or expended wholly and exclusively for the purpose of the business, the Appellate Tribunal was of the following view : " It has, therefore, to be considered firstly whether the payment of interest by the assessee to the Tamil Nadu Government in respect of the unit allotted to him in an industrial estate was a capital expenditure and, secondly, whether it could be said to have been laid out wholly and exclusively for the purpose of the business. Here again, we are of the opinion that the case is governed by the principle laid down by the Supreme Court in Bombay Steam Navigation Co. (1953) P. Ltd. v. CIT [1965] 56 ITR 52. As already stated, the alternate claim of the assessee in the said case was that the interest paid by it in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayable on July 10, 1972, and January 10, 1973, were paid by the assessee during the relevant previous years, viz., on October 14, 1972, and March 31, 1973, respectively. The first instalment payable on January 10, 1972, was paid on August 24, 1972, which date does not fall within the previous year relevant to the assessment year under consideration. Consequently, Rs. 9,148.50 being the aggregate of the second and third instalments could be allowed." It is contended by Mr. N. V. Balasubramaniam, learned counsel appearing for the Revenue, that the Appellate Tribunal erred in law in allowing the deduction of a sum of Rs. 9,148,50 representing the interest paid to the Government of Tamil Nadu for allotment of an industrial unit under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital outgoings. Gross profits or gains must undoubtedly be of the nature of revenue receipts. But in the computation of taxable profits from the receipts of the business, not only revenue deductions but certain capital deductions are permitted to be made, e.g., depreciation, sums paid to scientific research associations, expenditure of a capital nature on scientific research and other expenditure of a capital nature. By clause (iii) of sub-section (2), interest paid in respect of capital borrowed for the purpose of the business, profession or vocation is a permissible allowance in the computation of the profits or gains. The expression 'capital' used in clause (iii) in the context in which it occurs means money and not any other asset, for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head, 'Profits and gains of business or profession." From a reading of the above section, it is clear that section 37(1) of the Act provides that any expenditure not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee, laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". In the instant case, the assessee had already commenced his business in 1971 an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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