Commissioner of Income Tax vs Kasthuri and Sons

R. Jayasimha Babu, J.—The question referred to us at the instance of the Revenue is as to whether the Tribunal was right in holding and had

valid materials to hold that the interest on the amount borrowed for its Hyderabad facsimile project should be treated as a revenue expenditure and

allowed as a deduction in computing the income of the assessee."" The assessment year is 1977-78.

The assessee is a publisher of the Hindu newspaper. It has been carrying on business for several decades. It established a printing fascimile unit

at Hyderabad for printing its paper locally so that despatch to that destination from Madras which involved delay could be avoided. The assessee

borrowed monies for the purpose of setting up that unit and though it had capitalised the interest paid on such borrowings in its accounts by way of

an adjustment statement, it claimed the interest as revenue expenditure. That claim was disallowed by the Income Tax Officer, but was allowed by

the Commissioner and such allowance was affirmed by the Tribunal.

The Commissioner had relied on the decision of the Supreme Court in the case of India Cements Ltd. Vs. Commissioner of Income Tax,

Madras, , wherein the court held that a loan obtained was not an asset or an advantage of an enduring nature, that it is obtained only for securing

the use of money for a certain period and that it was irrelevant to consider the object with which the loan was obtained. The court further observed

that where there is no express prohibition, an outgoing by means of which an assessee procures the use of a thing by which he makes a profit, is

deductible from the receipts of the business to ascertain the taxable income.

In view of this pronouncement that the object with which the loan is obtained is irrelevant and that the loan is not an enduring asset, interest paid

on such loan is necessarily to be regarded as revenue expenditure, as there is no prohibition on such outgoing and the amount paid is an item of an

expenditure.

The Supreme Court in the case of Additional Commissioner of Income Tax Vs. Akkamamba Textiles Ltd., , dismissed the appeal against the

judgment of the High Court which had held that the guarantee commission paid by the assessee to the banker and the insurance company for

ensuring deferred payment of the purchase consideration of machinery was an admissible deduction u/s 37 of the Income Tax Act, 1961.

Even as the expenditure incurred in connection with the obtaining of the loan such as stamp duty, registration fees, lawyers'' fees were held to be

allowable items of the expenditure in the case of India Cements Ltd. Vs. Commissioner of Income Tax, Madras, and guarantee commission paid

for ensuring deferred payment of the purchase consideration of machinery was held to be an allowable item of an expenditure u/s 37 of the Act in

the case of Additional Commissioner of Income Tax Vs. Akkamamba Textiles Ltd., , the interest paid on monies borrowed for the purpose of

erecting another plant to carry on the assessee''s business in a more efficient manner would constitute a deductible item of expenditure for the

purpose of Section 37 of the Act. We, therefore, answer the question referred to us in favour of the assessee and against the Revenue. There will

be no order as to costs.