Freeze King Industries (P) Ltd. vs Commissioner of Income Tax

Arijit Pasayat, C.J.

At the instance of assessee, the following question has been referred for opinion of this court u/s 256(1) of the Income Tax Act, 1961 (hereinafter referred to as ''the Act''), by the Tribunal, Delhi Bench ''B'' :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the sum of Rs. 5,115 paid as interest along with Installment in respect of plot No. 182/14, Industrial Area, Chandigarh was of capital nature and was not allowable as revenue expenditure ?"

Dispute relates to assessment year 1976-77. The background facts essentially are as follows : The assessed is a private limited company which was incorporated on 24-6-1966 and carried on the business of manufacture and sale of air-conditioning and refrigeration machinery. Previous year for the assessment year in question ended on 30-6-1975. On an application made by the assessee, Estate Officer, Chandigarh Administration, by order dated 11-9-1972 allotted a plot in Industrial Area, Chandigarh for a consideration of Rs. 1,18,037. The assessed was required to pay 25 per cent of the premium immediately. The assessee, paid the required amount and possession was given on 20-10-1972. By a letter dated 17-8-1973 Chandigarh Administration required the assessed to pay first Installment of Rs. 24,336.25 which comprised of principal of Rs. 16,180.84, interest of Rs. 5,472.66 and ground rent of Rs. 2,682.75. Thereafter 2nd, 3rd, 4th and 5th installments were required to be paid on 11-9-1974 to 1977. Along with the instalment, the assessed paid interest of Rs. 5,115 for the assessment year in question and claimed it as a revenue expenditure. The Income Tax Officer disallowed it, holding it to be of capital nature. Matter was carried in appeal before the Commissioner (Appeals). Said authority affirmed the assessing officer''s conclusion. The assessed carried the matter in appeal before the Tribunal. The assessor�s stand was that the amount in question constituted revenue expenditure. The Tribunal did not accept the plea. It was held that the assessed had paid only certain installments and the land in respect of which the installments had been paid was yet to be used for the purpose of business. No construction of the factory had also taken place. Therefore, the payment was held to be of capital nature. On being moved for reference, question as set out above has been referred for opinion.

We have heard the learned counsel for the revenue. There is no appearance on behalf of the assessed in spite of notice. The learned counsel for the revenue pointed out that as has been analysed by the Tribunal, the expenditure made is clearly of capital nature.

At this juncture it would be necessary to take note of section 43(1) of the Act, Explanation 8. The provision reads as follows :

"43. Definitions of certain terms relevant to income from profits and gains of business or profession. In sections 28 to 41 and in this section, unless the context otherwise requires

(1) ''actual cost'' means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority:

Provided that where the actual cost of an asset, being a motor car which is acquired by the assessed after the 31-3-1967, but before the 1-3-1975, and is used otherwise than in a business of running it on hire for tourists, exceeds twenty-five thousand rupees, the excess of the actual cost over such amount shall be ignored, and the actual cost thereof shall be taken to be twenty-five thousand rupees.

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Explanation 8.For the removal of doubts, it is hereby declared that where any amount is paid or is payable as interest in connection with the acquisition of an asset, so much of such amount as is relatable to any period after such asset is first put to use shall not be included, and shall be deemed never to have been included, in the actual cost of such asset."

It is to be noted that the Explanation in question was inserted by the Finance Act, 1986 with retrospective effect from 1-4-1974. This provision, no doubt, was not before the Tribunal when it dealt with the question. Therefore, it would be proper if the Tribunal considers the effect of this insertion and decides the claim of the assessee. The matter is, accordingly, remanded back to the Tribunal for fresh adjudication. While deciding the matter afresh, the principles laid down by the Apex Court in Challapalli Sugar Ltd. Vs. The Commissioner of Income Tax, A.P., Hyderabad, shall be kept in view by the Tribunal.

The reference stands disposed of.