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TMI Blog1980 (4) TMI 136X X X X Extracts X X X X X X X X Extracts X X X X ..... Relying on the decision of the Cochin Bench of the Tribunal in ITA No. 434 of 76-77 dt. 22nd Sept., 1978 it is claimed that at any rate the current liabilities should not be deducted. 2. The Tribunal has taken the view in several cases that liabilities including current liabilities are not to be deducted in working out the capital for the purposes of s. 80J relief. Following these decisions the departmental appeals are dismissed. 3. In the cross objections the assessee had claimed that for computing the relief under s. 80J the average of the capital at the beginning and end of the year should be adopted and not the capital at the beginning of the year as is done by the ITO for the asst. yrs. 1974-75 and 1975-76. In our order in ITA N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 15,061. The ITO allowed 10 per cent of the above expenditure under s. 35D and disallowed the balance. The assessee's claim before the AAC for allowance of the balance relying on the decision in India Cement's case (4), was rejected by the AAC. 7. Before us the ld. representative of the assessee has pointed out that the redeemable preference shares were issued only to obtain long term capital. Even though called shares redeemable preference share stand in an entirely different category from share capital and represent a distinct and particular item of loan. It is urged that the amounts received by such issue went towards increasing the financial position of the company and making large amounts available for the working of the compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ividend that they are entitled to a fixed cumulative preferential dividend of 9.8 per cent per annum (free of company's tax but subject to deduction of tax at the source at the prescribed rates as required under the IT Act, 1961) from the date of allotment in proportion to the paid-up capital thereon. (b) That in the event of a winding up, they have the right to repayment of capital and arrears of dividend, whether earned, declared, or not upto the commencement of the winding up, in priority to the holders of Equity shares; (c) As to redemption, that they shall be redeemed before the expiry of 15 years from the date of allotment provided that they may be redeemed earlier but not earlier than 12 years from the date of allotment, in eit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... self would be a deductible expenditure or not would in our opinion have no relation at all with the payments of interest, its allowability for IT purposes or other related matters. 10. In India Cement Ltd. vs. CIT (4), the assessee public limited company obtained a loan of Rs. 40 lakh from the Industrial Financial Corpn. of India, the loan being secured by a charge on the fixed assets of the company. The expenditure of Rs. 84,633 by way of stamp fees etc., was incurred in connection with the loan but it was not charged to the P L Account for the year but was shown in the balance sheet as mortgage loan expenses. It was written off by appropriation against the profits of the subsequent year. The ITO held that the expenditure was incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the loan, change its mind and spend it on securing capital assets. Is the purpose at the time the loan is negotiated to be taken into consideration or the purpose for which it is actually used? Further, suppose that in the accounting year the purpose is to borrow and buy raw materials but in the assessment. yr. the company finds it unnecessary to buy raw materials and spends it on capital assets. Will the ITO decide the case with reference to what happened in the accounting year or what happened in the assessment. year? In our opinion, it was rightly held by the Nagpur Judicial Commissioner in Nagpur Electric Light and Power Co. vs. CIT (7) that the purpose for which the new loan was required was irrelevant to the consideration of the qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng debentures have been clearly held to be allowable expenditure. Redeemable preference share-holders whose shares have to be redeemed not before 12 years but certainly before 15 years do not stand in any way different from debenture loans or other long term loans taken from financial institutions like the Industrial finance Corpn. as in the case of India Cement Ltd.(4) Each method of borrowing may have its own adjuncts but on the facts of the present case it is clear that what the assessee obtained was only financial accommodation or assistance and not business partnership which would involve sharing of risk etc. What applies, therefore, to debentures as in Eastern Investment Ltd. or other form of loan as in India Cement Ltd.(4) would cert ..... X X X X Extracts X X X X X X X X Extracts X X X X
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