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TAXAP/94520/2006 7/ 7 JUDGMENT
IN
THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX
APPEAL No. 945 of 2006
For
Approval and Signature:
HONOURABLE
MR.JUSTICE K.A.PUJ
HONOURABLE
MR.JUSTICE BANKIM.N.MEHTA
=========================================================
1
Whether
Reporters of Local Papers may be allowed to see the judgment ?
2
To be
referred to the Reporter or not ?
3
Whether
their Lordships wish to see the fair copy of the judgment ?
4
Whether
this case involves a substantial question of law as to the
interpretation of the constitution of India, 1950 or any order
made thereunder ?
5
Whether
it is to be circulated to the civil judge ?
=========================================================
GUJARAT
STATE FERTILIZER & CHEMICALS LTD. - Appellant(s)
Versus
ASSISTANT
COMMISSIONER OF INCOME TAX - Opponent(s)
=========================================================
Appearance
:
MR
JP SHAH for
Appellant(s) : 1,MR MANISH J SHAH for Appellant(s) : 1,
MR MANISH
R BHATT for Opponent(s) :
1,
=========================================================
CORAM
:
HONOURABLE
MR.JUSTICE K.A.PUJ
and
HONOURABLE
MR.JUSTICE BANKIM.N.MEHTA
Date
: 22/08/2008
ORAL JUDGMENT
(Per
: HONOURABLE MR.JUSTICE K.A.PUJ)
The appellant
assessee has filed this Tax Appeal under Section 260(A) of the
Income-tax Act, 1961 for the assessment year 1992-93. The appeal was
admitted by this Court on 2.8.2006 and the following substantial
question of law was formulated for determination and consideration
of this Court.
Whether on
the facts and in circumstances of the case, the Tribunal was right in
law in disallowing the interest of Rs.27,96,55,759/- paid in respect
of capital borrowed for the purposes of its business being second
Caprolactum plant under installation?
The brief facts giving
rise to the present appeal are that the appellant is a Joint Sector
Company owned by the Gujarat Government, the Public Financial
Institutions and the individual shareholders. The appellant was
already running one Caprolactum manufacturing plant and was in the
midst of installing second Caprolactum plant and had made huge
borrowing in respect of the second Caprolactum plant. The interest
on such borrowing was allowed by the Tribunal in the assessment year
1990-91 following this Court’s decision in Commissioner of Income
tax Vs. Alembic Glass Industries Ltd., reported in (1976) 103 ITR
715. This Court dismissed the Department’s appeal therefrom on the
point of deductability of interest. For the assessment year 1991-92
also the Tribunal allowed such interest and the department accepted
the said order by not preferring an appeal to this Court against the
said order. In the appeal for assessment year 1992-93, filed by the
Revenue, the Tribunal took the view that these two orders of the
Tribunal on identical facts were per incuriam and likewise, the two
decisions of this Court in Commissioner of Income Tax Vs. Alembic
Glass Industries Ltd., reported in (1976) 103 ITR 715 and Deputy
Commissioner of Income-tax Vs. Core Healthcare Ltd., reported in
(2001) 251 ITR 61. Being aggrieved and dissatisfied with the order
dated 12.5.2006 the appellant preferred the above Tax Appeal before
this Court under Section 260(A) of the Income Tax Act.
Mr.J.P.Shah, learned
counsel appearing for the petitioner has submitted that the issue is
squarely concluded by the decision of the Hon’ble Supreme Court in
the case of Deputy Commissioner of Income-tax Vs. Core Health Care
Ltd., reported in (2008) 298 ITR 194 (SC). He had invited the
Court’s attention to the ratio laid down by the Hon’ble Supreme
Court in the same judgment, which is squarely applicable to the
facts of the present case. The Hon’ble Supreme Court in that case
has held that Section 36(1)(iii) of the Income-tax Act, 1961 has to
be read on its own terms: it is a code by itself. It makes no
distinction between money borrowed to acquire a capital asset or a
revenue asset. All that the section requires is that the assessee
must borrow capital and the purpose of the borrowing must be for
business which is carried on by the assessee in the year of account.
Unlike Section 37 which expressly excludes an expense of a capital
nature, Section 36(1)(iii) emphasise the user of the capital and not
the user of the asset which comes into existence as a result of the
borrowed capital. The legislature has, therefore, made no
distinction in Section 36(1)(iii) between capital borrowed for a
revenue purpose and capital borrowed for a capital purpose ,
and the Court, therefore, took the view in the said decision that
the assessee is entitled to claim interest paid on borrowed capital
provided that the capital is used for business purpose irrespective
of what may be the result of using the capital which the assessee
has borrowed. Actual cost of an asset has no relevancy in
relation to section 36(1)(iii) of the Act. Applying the ratio of
the decision of the Supreme Court to the facts of the present case
and considering that there is no dispute about the fact that the
capital borrowed was used for the purpose of business and whether it
is for the capital purpose or revenue purpose is immaterial while
allowing deduction under Section 36(1)(iii) of the Act, the appeal
of the appellant is required to be allowed.
Mr.Manish Bhatt, learned
Sr. Standing Counsel appearing for the Revenue cannot dispute the
applicability of the ratio of the decision of the Hon’ble Supreme
Court to the present case.
Considering the facts of
the present case and the decision of the Hon’ble Supreme Court, we
are of the view that the Tribunal was not right in law in
disallowing the interest of Rs.27,96,95,759/- paid in respect of
capital borrowed for the purpose of its business being Second
Caprolactum Plant under installation. This Tax Appeal is, therefore,
allowed. The question formulated by this Court is answered in
negative, that is, in favour of the assessee and against the
Revenue.
This appeal is
accordingly disposed off.
(K. A. PUJ, J.)
(B. N. MEHTA, J.)
kks
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