The Commissioner of Income Tax and Another vs Jhunjhunwala Vanaspati Ltd.

Sushil Harkauli and Rakesh Sharma, JJ.—We have heard Sri A.N. Mahajan for the appellant department and Sri R.R. Agrawal for the respondent.

So far as the first-two questions sought to be raised in this appeal are concerned, although the total cost of all the machinery parts was Rs. 2,35,710/- in the relevant year, but each part individually cost less than Rs. 5000/- and, therefore, allowing of 100% depreciation on each individual part instead of the depreciation of only 25% was justified. The Tribunal has not committed any error on the said question.

The next question sought to be raised before us with regard to Tribunal deleting the addition of Rs. 5,725/- on account of brokerage expenditure relating to earlier year, the issue stands concluded in favour of the assessee and against the department by a decision of this Court in the case of Swadeshi Cotton Mills Co. Ltd. v. C.I.T. 125 ITR 22.

The fourth question of law which has been sought to be raised in this appeal by the department relates to the Tribunal''s decision treating the interest income out of ''bridge loan'' under the head ''business income'' instead of the head ''income from other sources''. The facts recorded in the Tribunal''s order indicate that the assessee had taken a loan of Rs. 2 crores from the State Bank of Rajasthan to finance its expansion plan. As the loan released by the bank could not be utilised immediately, therefore, the assessee as a prudent businessman temporarily invested the borrowed funds on which interest amounting to Rs. 3,44,843/- was earned by the assessee as against the interest of Rs. 4,82,243/- paid by the assessee on the borrowed money. Such temporary use of the borrowed funds by investing and earning interest according to the Tribunal was not an investment of a nature which would bring the interest income under the head ''income from other sources''. The Tribunal has relied upon a decision of the Supreme Court in the case of Keshavji v. C.I.T. : [1990]183ITR1(SC) and the case of India Cements Ltd. Vs. Commissioner of Income Tax, Madras, The Tribunal has also relied upon a decision of the Madras High Court in the case of Commissioner of Income Tax Vs. Tamil Nadu Dairy Development Corporation Ltd.,

In the case of Tuticorin Alkali Chemicals and Fertilizers Ltd., Madras Vs. Commissioner of Income Tax, Madras, it has been held that interest earned on surplus funds kept in short term deposits is chargeable u/s 56 of the Act. The Apex Court has held as follows:

The basic proposition that has to be borne in mind in this case is that it is possible for a company to have six different sources of income, each one of which will be chargeable to income tax. Profits and gains of business or profession is only one of heads under which the company''s income is liable to be assessed to tax. If a company has not commenced business there cannot be any question of assessment of its profits and gains of business. That does not mean that until and unless the company commences its business, its income from any other source will not be taxed. If the company, even before it commences business, invests the surplus funds in its hands for purchase of land or house property and later sells it at profit, the gain made by the company will be assessable under the head "Capital gains". Similarly, if a company purchases a rented house and get rent, such rent will be assessable to tax u/s 22 as income from house property. Likewise, a company may have income from other sources. It may buy shares and get dividends. Such dividends will be taxable u/s 56 of the Act. The company has also, as in this case, keep the surplus funds in short-term deposits in order to earn interest. Such interest will be chargeable u/s 56 of the Act.

The aforesaid decision has subsequently been followed by the Apex Court in the case of Commissioner of Income Tax v. Coromandal Cement Limited (1998) 234 ITR 412 , Commissioner of Income Tax Bihar-II Patna Vs. Bokaro Steel Limited, Bokaro, and Commissioner of Income Tax v. Autokast Ltd. (2001) 248 ITR 110.

However, the principle laid down in the above decisions will not apply in the present case because in the case before us the capital was not borrowed and invested before commencing business. The case before us is one where business was already being carried out and capital was borrowed from the bank, for expansion. The business income of the assessee was already existing. We, therefore, agree with the decision of the Tribunal on the above point.

The last question raised in this appeal by the department is whether on the facts and circumstances of the case, the Tribunal was justified in holding that the expenses incurred for raising public issue is revenue expenditure in nature. It was argued that this issue stands concluded against the department and in favour of the assessee by the law declared by the Supreme Court. On that basis, we had dictated this order deciding this point also in favour of the assessee. However, before signing the order, we found that in the case of Commissioner of Income Tax, Mumbai Vs. General Insurance Corporation, the Supreme Court has held as follows:

Decisions of this Court in Punjab State Industrial Development Corporation Ltd., Chandigarh Vs. Commissioner of Income Tax, Patiala, and Brooke Bond India Limited Vs. Commissioner of Income Tax, West Bengal-III, Calcutta, and Commissioner of Income Tax Vs. Motor Industries Co. Ltd., of Karnataka High Court at page SCW 5538, Commissioner of Income Tax Vs. Ajit Mills Ltd., , Commissioner of Income Tax Vs. Deepak Family Trust No. 1 and Others, and Union Carbide India Ltd. Vs. Commissioner of Income Tax, of Calcutta High Court are of not much assistance to us. All these cases relate to the issue of fresh shares which lead to an inflow of fresh funds into the company which expands, or adds to its capital employed in the company resulting in the expansion of its profit making apparatus. Expenditure incurred for the purpose of increasing company''s share capital by the issue of fresh shares would certainly be a capital expenditure as has been held by this Court in the cases cited above.

In view of this, let the matter be listed again for further hearing on the above question.