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Judgment
P.P.S. Janarthana Raja, J.—The Revenue has filed this appeal u/s 260A of the Income Tax Act against the order dated 28.11.2002 made in
I.T.A. No. 936(Mds)/97 on the file of the Income Tax Appellate Tribunal Madras. When the appeal came up for hearing, this Court has admitted
the same on the following substantial questions of law:
i. Whether in the facts and circumstances of the case, the Tribunal was right in law in holding that the power subsidy received from the electricity
board should be treated as capital receipt?
ii. Whether in the facts and circumstances of the case, the Tribunal was right in law in holding that the ""front and fee"" in respect of loan borrowed
for expansion of a unit is to be deducted as revenue expenditure?
The brief facts arising out of the above tax case are as here under:
The assessee filed a return of income on 31.12.1993 and revised return on 30.12.1994 both admitting ''Nil'' income. The assessing officer issued
notice u/s 143(2) of the Income Tax Act on the assessee and later, assessment was completed by the Assessing Officer determining the total
income at Rs. 3,33,836/-. He treated the power subsidy received from the Government as a revenue receipt and also disallowed the expenditure
of ""front end fee"" as capital expenditure. Aggrieved by the order of the assessing officer, the assessee filed an appeal before the Commissioner of
Income Tax (Appeals). The Commissioner of Income Tax (Appeals) allowed the appeal and set aside the order of the assessing officer. Aggrieved
by the same, the Revenue filed an appeal before the Income Tax Appellate Tribunal. The Tribunal dismissed the appeal filed by the Revenue and
confirmed the order of the C.I.T.(A).
Inspite of notice served on the respondent, there is no representation on behalf of the respondent.
In respect of Question No. 1, Learned standing counsel appearing for the Revenue submitted that the issue is covered by a judgment of the
Supreme Court reported in Commissioner of Income Tax Vs. Rajaram Maize Products, . Following the same, we answer Question No. 1 in
favour of the Revenue and against the assessee.
In respect of question No. 2, learned standing counsel submitted that the impugned amount was incurred for obtaining loan for the purpose of
setting up an unit and hence it is only a capital expenditure. He further submitted that the Tribunal erred in following the ratio of the Supreme Court
judgment reported in Commissioner of Income Tax Vs. Siwakami Mills Ltd., , wherein the Supreme Court dealt with guarantee commission and
not with ""front end fee"" or loan processing charges.
Heard the counsel. During the year of account the assessee obtained sanction for a term loan of Rs. 820 lakhs from IDBI. While availing the
above loan, the assessee incurred a sum of Rs. 8.20 lakhs towards ""front end fee payment"" at the rate of 1% on the loan amount. Without paying
the above said amount, the IDBI may not have sanctioned the loan amount for setting up the new unit at Gudalur. Here the amount is paid only for
obtaining the loan and hence the same does not bring into existence any asset on an enduring nature. If interest paid on borrowed amount could be
held to be revenue expenditure, we fail to see how the present amount incurred for obtaining loan for setting up of a new unit, could be regarded as
capital payment. It is the condition precedent for obtaining the loan and also it is the nature of processing fees for the bank to release the loan
incurred for the purpose of the business and hence the same is only revenue expenditure. The Tribunal correctly followed the principle enunciated
in the judgment reported in Commissioner of Income Tax Vs. Siwakami Mills Ltd., and decided the case in favour of the assessee. We find no
error or legal infirmity in the order of the Tribunal, so as to warrant interference. Accordingly, we answer the second question in favour of the
assessee and against the Revenue.
With the above observation, the tax case is disposed of. No costs.