Commissioner of Income Tax vs ABDUL KARIM STONE

By the Court

On an application filed u/s 256(1) of the Income Tax Act, 1961, the Tribunal has referred the following questions for the opinion of this court :

"Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in taking the view that an amount of Rs. 503 being sales-tax liability and an amount of Rs. 71,099 being provident fund liability which had not been paid by the assessee within the previous year relevant for the assessment year 1986-87 but which had been paid within the time allowed under the sales-tax law and the provident. find law respectively, should not have been disallowed u/s 43B of the Income Tax Act?"

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in taking the view that an amount of Rs. 11,770 incurred on stamps and an amount of Rs. 87,089 paid to the bank as guarantee fee for fee for obtaining loan from IDBI for purchase of new machinery should be allowed as revenue expenditure when the assessee had already a running business and the assets, for purchasing which the loan was procured, were purchased for carrying on assessee''s business ?"

The assessee-firm has been carrying on the business of owning. stone mines and extracting stones therefrom and selling those stones. During the course of assessment, assessing officer had disallowed the amount of Rs. 503 by invoking the provisions of section 43B, as the amount has not been paid within the previous year relevant for assessment year 1986-87.

Learned counsel for the revenue fairly admits that now the issue is covered by the decision of Supreme Court in the case of Allied Motors (P.) Ltd. Vs. Commissioner of Income Tax, Delhi,

Following the view taken by their Lordships, we find no infirmity in the view taken in respect of allowance of tax u/s 43B of the Act.

During the course of assessment, assessing officer has also noticed that the assessee has incurred an amount of Rs. 11,770 on stamps for loans agreement and further noticed that the Bank of Rajasthan Ltd. stood as a guarantor for procuring the loans from the IDBI and the Bank of Rajasthan had charged Rs. 87,089 as guarantee fee for this purpose. Assessee claimed it as a revenue expenses. Income Tax Officer has taken the view that the loan has been taken for acquiring the capital assets, therefore, this amount incurred, goes to the capital account and only depreciation can be allowed on the cost of the assets acquired.

Heard learned counsel for the revenue. None appeared for the assessee.

Admittedly, the amount of Rs. 11,770 has been incurred on purchase of stamps for loan agreement and Rs. 87,089 has been paid to the Rajasthan Bank as a guarantee fee in which the Rajasthan Bank has stood as a guarantor for the assessee in respect of the loan taken by the assessee from IDBI. The loan admittedly has been taken for acquiring the capital asset.

When the expenses has been incurred on capital assets that part of the amount cannot be allowed as revenue expenses and, therefore, cannot be allowed as deduction.

Thus, the Tribunal has committed error in allowing the aforesaid amount as revenue expenses.

The reference so made stands disposed of accordingly.

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