Commissioner of Income Tax vs Tumus Electric Corporation Ltd.

G.G. sohani, actg. C.J.

By this reference u/s 256(1) of the Income Tax Act 1961, (hereinafter referred to as "the Act"), the Income Tax Appellate Tribunal, Jabalpur Bench, Jabalpur, has referred the following question of law to this court for its opinion :

"Whether, on the facts and in the circumstances of the case, the assessee was entitled to deduction of expenditure of Rs. 22,561 incurred on execution of mortgage deed for obtaining capital subsidy ? "

The material facts giving rise to this reference briefly are as follows : The assessee is a limited company manufacturing transformers, laminations, etc., at Rewa. During the assessment year 1977-78, the assessee had applied to the State Government for grant of capital subsidy. The assessee had also approached the Madhya Pradesh Financial Corporation for a loan of Rs. 24 lakhs with a request that the amount of capital subsidy be adjusted against the loan to be advanced by the Madhya Pradesh Financial Corporation. To secure the loan, the assessee was required to execute a deed of mortgage and for that purpose, the assessee incurred expenditure amounting to Rs. 22,561 being the cost of stamps. This amount was claimed by the assessee as a deduction, but the Income Tax Officer disallowed it. On appeal, the Commissioner of Income Tax (Appeals) upheld disallowance by the Income Tax Officer. The assessee thereupon filed further appeal before the Tribunal. The Tribunal upheld the contention of the assessee and held that the assessee was entitled to deduction of Rs. 22,561. Aggrieved by the order passed by the Tribunal, the Revenue sought reference and it is at the instance of the Revenue that the aforesaid question of law has been referred to this court for its opinion.

The decisions reported in Upper Doab Sugar Mills Ltd. Vs. Commissioner of Income Tax (Central), ; Shree Digvijay Cement Co. Ltd. Vs. Commissioner of Income Tax, Gujarat-V, and Brooke Bond India Ltd. Vs. Commissioner of Income Tax, relied upon by learned counsel for the Revenue, deal with the question of expenditure incurred in connection with the issue of shares and are, therefore, distinguishable on facts. In India Cements Ltd. Vs. Commissioner of Income Tax, Madras, the Supreme Court has held that a loan is a liability and is not an asset or advantage of an enduring nature, that expenditure made for securing the use of money for a certain period is revenue, expenditure and that it is irrelevant to consider the object with which the loan is obtained. In the instant case, the Tribunal has found that the Madhya Pradesh Financial Corporation had accepted the request of the assesses to adjust the amount of capital subsidy against the loan to be advanced by the Madhya Pradesh Financial Corporation and that there was no regulation regarding the application of the capital subsidy to any specific purpose. In view of these findings, the Tribunal, in our opinion, was justified in holding in the light of the decision of the Supreme Court in India Cements Ltd. Vs. Commissioner of Income Tax, Madras, that the expenses incurred by the assesses in connection with the execution of a mortgage deed to secure a loan was revenue expenditure and the assessee was entitled to the deduction.

For all these reasons, our answer to the question referred to this court is in the affirmative and against the Revenue. In the circumstances of the case, parties shall bear their own costs of this reference.