Commissioner of Income Tax vs Sri Meenakshi Mills Ltd.

P.D. Dinakaran, J.—The above tax case appeal is directed against the order of the Income Tax Appellate Tribunal made in I. T. A. No. 1610/Mds of 2003, dated December 30, 2005.

The Revenue is the appellant. The assessment year involved is 1991-92. The assessee, which is a public limited company, filed its return declaring loss to a tune of Rs. 9,50,09,667. The Assessing Officer, after completing the assessment u/s 143(3) of the Income Tax Act, 1961, treated the upfront fee of Rs. 4.4 lakhs paid to the bank for availing of loan as capital expenditure and also treated the sales tax and excise duty collection as trading receipts and accordingly added the same. The Assessing Officer also disallowed the deduction claimed by the assessee u/s 43B in respect of the interest paid to the financial institutions. Aggrieved by the order of the Assessing Officer, the assessee filed an appeal before the Commissioner of Income Tax (Appeals), who allowed the appeal holding the issues in favour of the assessee. On appeal by the Revenue, the Income Tax Appellate Tribunal while upholding that the upfront fee paid to the bank for availing of the loan is a revenue expenditure, remanded the matter back to the Assessing Officer with regard to the other two issues. Hence, the Revenue has preferred the present appeal by raising the following substantial questions of law:

Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the upfront fee paid to the bank for availing of loan as revenue expenditure ?

Whether, on the facts and circumstances of the case, the Tribunal was right in remanding the issue of applicability of Section 43B of the excise duty and sales tax collection, to the Assessing Officer without treating the collection as trading receipts ?

Whether, on the facts and circumstances of the case, the Tribunal was right in remanding the issue of Section 43B disallowance of interest payment to financial institutions to the Assessing Officer with a direction that if the said interest had become due after close of the year and before the due date of filing return and still not paid, the disallowance shall be made and not otherwise ?

Let us now deal with the first question of law, viz., whether the upfront fee paid to the bank for availing of loan is a capital or revenue expenditure. It is not in dispute that the assessee has paid a sum of Rs. 4.4 lakhs towards 1 per cent, upfront fee paid to the IFCI for availing of loan for purchase of machineries. But, the Assessing Officer, holding that since the loan borrowed from the bank was used for purchase of plant and machinery, the upfront fee spent by the assessee for availing of the said loan should be treated as capital expenditure and not as revenue expenditure, as it was meant for capitalising the plant and machinery and therefore to be held as capital in nature.

But, the Commissioner of Income Tax (Appeals) by order dated May 12, 2003, and the Tribunal, by order dated December 30, 2005, have concurrently found that the sum of Rs. 4.4 lakhs, being 1 per cent, of upfront fee, paid by the assessee to the bank, is nothing but the bank charges and the same cannot be construed as a capital expenditure. In our considered opinion, the law on the point, viz., whether the expenditure incurred by the assessee while availing of loan, assuming it is for purchase of plant and machinery, is a capital expenditure or revenue expenditure, was long back decided by the apex court as well as by several other High Courts, including this court, in favour of the assessee, holding that such expenditure is a revenue expenditure.

The Andhra Pradesh High Court in Addl. Commissioner of Income Tax Vs. Akkamba Textiles Ltd., , has 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. The said view of the Andhra Pradesh High Court was affirmed by the Supreme Court, on appeal by the Revenue, reported in Additional Commissioner of Income Tax Vs. Akkamamba Textiles Ltd., .

Similarly, this court also in Sivakami Mills Ltd. Vs. Commissioner of Income Tax, , held that the guarantee commission paid to the bank was a revenue expenditure and therefore was an allowable deduction in computing the total income of the assessee, which was also affirmed by the apex court, on appeal by the Revenue reported in Commissioner of Income Tax Vs. Siwakami Mills Ltd., .

The above view of the apex court was subsequently followed by the Gujarat High Court in Vikram Mills Ltd. v. CIT [2000] 242 ITR 290 and in Mihir Textile Ltd. Vs. Commissioner of Income Tax, , holding that the bank guarantee commission was a revenue expenditure and hence allowable as deduction in computing the income.

In view of the above settled proposition of law with regard to issue No. 1, we find no substantial question of law to be considered in this appeal with regard to the first issue.

With regard to the second issue, viz., remanding the issue of applicability of Section 43B of the excise duty and sales tax collection, to the Assessing Officer without treating the collection as trading receipts, the Tribunal has found that there is no evidence as to the details of actual payments of these dues. It is a settled law that any statutory liability towards sales tax, ESI contributions and provident fund contributions discharged after the close of the previous year but before the due date for filing returns, can be allowed as deduction u/s 43B of the Income Tax Act, 1961, only on actual payment of the same, viz., Commissioner of Income Tax Vs. Alembic Glass Industries Ltd., .

It is under these circumstances, both the Commissioner of Income Tax (Appeals) and the Tribunal, finding that there was no evidence with regard to the actual payment of the dues, had rightly set aside the order of the Assessing Officer and remanded the matter with a direction to re-examine the issue and to allow deduction u/s 43B if the amount towards sales tax and excise duty has been paid to the Government before the due date of filing of return, or otherwise, to confirm the addition. In view of the same, we again do not see any substantial question of law to be considered with regard to the second issue.

With regard to the third issue, viz., disallowance of interest payment to the financial institutions, the Tribunal has found that the deduction u/s 43D in respect of interest payment to the financial institutions can be considered only in the light of the materials as to the relevant date of payment, viz., whether the same is paid before the date of filing of the return or not. Therefore, we do not see any substantial question of law in this regard as the Tribunal has only remanded the matter to the Assessing Officer to re-examine the issue with regard to the actual date of payment of interest to the financial institutions, as contemplated under the proviso to Section 43B of the Act.

Accordingly, finding no substantial question of law that arises for our consideration in this tax case (appeal), the same is dismissed.