Cit Vs. Textool Co. Ltd. - Court Judgment

Excerpt:
counsels: mrs. pushya sitharaman, for the revenue p. p. s. janardhana raja, for the assessee head note: income tax depreciation--actual costcomputation--capitalisation of future interest payable on loans catch note: assessee borrowed some loans under deferred payment scheme. he capitalised the future interest payable on loans availed of and claimed depreciation on the capitalised value. assessing officer did not allow this capitalisation of future interest payable in view of explanation 8 to section 43(1). even though the seller of machinery might had issued a bill for consolidated amount including the principal as well as interest, in view of explanation 8 to section 43(1), any amount paid as interest in connection with the acquisition of asset should not be included as a part of actual cost of the asset. therefore, it was not open to the assessee to capitalise the interest payment and claim it as a part of actual cost of the machinery for the purpose of depreciation on the said amount. ratio: where the assessee had borrowed some loans under deferred payment scheme, and even if the seller had issued a consolidated bill, if the amount paid by the assessee represented the interest payment, it was not open to the assessee to capitalise the same and claim it as a part of actual cost of machinery for the purpose of depreciation on the said amount. case law analysis: coimbatore pioneer mills ltd. v. cit (1999) 236 itr 69 (mad) followed. application: also to current assessment year. decision: in favour of revenue. income tax act 1961 s.43(1) depreciation--actual costcomputation--capitalisation of future interest payable on loans catch note: assessee borrowed some loans under deferred payment scheme. he capitalised the future interest payable on loans availed of and claimed depreciation on the capitalised value. assessing officer did not allow this capitalisation of future interest payable in view of explanation 8 to section 43(1). even though the seller of machinery might had issued a bill for consolidated amount including the principal as well as interest, in view of explanation 8 to section 43(1), any amount paid as interest in connection with the acquisition of asset should not be included as a part of actual cost of the asset. therefore, it was not open to the assessee to capitalise the interest payment and claim it as a part of actual cost of the machinery for the purpose of depreciation on the said amount. ratio: where the assessee had borrowed some loans under deferred payment scheme, and even if the seller had issued a consolidated bill, if the amount paid by the assessee represented the interest payment, it was not open to the assessee to capitalise the same and claim it as a part of actual cost of machinery for the purpose of depreciation on the said amount. case law analysis: coimbatore pioneer mills ltd. v. cit (1999) 236 itr 69 (mad) followed. application: also to current assessment year. decision: in favour of revenue. income tax act 1961 s.43(1) in the madras high court n.v. balasubramanian & k. raviraja pandian, jj. - t.n. estates (abolition & conversion into ryotwari) act, 1948 [act no. 26/1948]. sections 5(2) & 67; [a.p. shah, cj, mrs. prabha sridevan & p. jyothimani, jj] suo motu revisional powers held, on a bare reading of the provisions of section 5(2) of the act, it is clear that the power conferred on the director by section 5(2) to cancel or revise any of the orders, acts or proceedings of the settlement officer is very wide. in the first place, the director need not necessarily be moved by any party in that behalf, and the power could be exercised either on an application by an aggrieved person or suo motu. for example, if the director comes to know that contrary to the scheme of the act or due to misrepresentation or fraud played, a patta had been granted to a person under the relevant provisions of the act, then to set right that mistake, the director should be enabled to exercise his power so as to effectuate the scheme of the act and to implement the purpose behind the act. the fact that the rule making authority has prescribed procedure in exercise of the powers under section 67 for making an application to the director does not mean that the suo motu power which is explicit in section 5(2) of the act is in any way curtailed or taken away. therefore, the contention of the respondent that making an application is sine qua non for invoking the power under section 5(2) of the act is not tenable. -- t.n. estates (abolition & conversion into ryotwari) act, 1948. sections 5(2) & 67; suo motu revisional powers held, on a bare reading of the provisions of section 5(2) of the act, it is clear that the power conferred on the director by section 5(2) to cancel or revise any of the orders, acts or proceedings of the settlement officer is very wide. in the first place, the director need not necessarily be moved by any party in that behalf, and the power could be exercised either on an application by an aggrieved person or suo motu. for example, if the director comes to know that contrary to the scheme of the act or due to misrepresentation or fraud played, a patta had been granted to a person under the relevant provisions of the act, then to set right that mistake, the director should be enabled to exercise his power so as to effectuate the scheme of the act and to implement the purpose behind the act. the fact that the rule making authority has prescribed procedure in exercise of the powers under section 67 for making an application to the director does not mean that the suo motu power which is explicit in section 5(2) of the act is in any way curtailed or taken away. therefore, the contention of the respondent that making an application is sine qua non for invoking the power under section 5(2) of the act is not tenable. n.v. balasubramanian, j.the tribunal has stated a case at the instance of the revenue and referred the following question of law in relation to the assessment year 1986-87 of the assessee :'whether, on the facts and in the circumstances of the case, the appellate tribunal is right in law in allowing depreciation on the capitalised amount payable in instalments, in respect of capitalised assets under the deferred payment scheme ?'2. the assessee is a company and it has borrowed some loans under the deferred payment scheme. the assessee capitalised the future interest payable on loans availed of by the assessee and claimed depreciation on the capitalised value. the assessing officer in his assessment proceedings, did not allow the capitalisation of future interest payable in view of explanation 8 to section 43(1) of the income tax act (hereinafter referred to as 'the act'). the commissioner (appeals) on appeal allowed the appeal preferred by the assessee directing the assessing officer to allow depreciation on deferred payment guarantee interest capitalised. the tribunal on appeal by the revenue also confirmed the view of the commissioner (appeals). hence, the present reference.3. heard mrs. pushya sitharaman, learned senior standing counsel for the revenue, and mr. janardhana raja, learned counsel for the assessee. learned counsel for the assessee submits that on the facts of the case the seller has issued the bill which is for the entire amount and, therefore, no part of the amount is referable to the interest and the assessee is entitled to capitalise the entire interest. we are unable to accept the submission of learned counsel for the assessee. admittedly, the assessee has availed of loan facility for the purpose of purchasing machinery and the future interest payable was payable on the loan was capitalised. though the seller of the machinery might have issued a bill for the consolidated amount including the principal as well as interest, we hold that in view of explanation 8 of section 43(1) of the act any amount paid as interest in connection with the acquisition of asset shall not be included and shall never be deemed to have been included as part of the actual cost of the asset. the words of explanation 8 to section 43(1) of the act are fairly wide to include any amount paid as interest in connection with the acquisition of an asset. therefore, even if the seller has issued a consolidated bill, if the amount paid by the assessee represents the interest payment, then it is not open to the assessee to capitalise the same and claim it as a part of the actual cost of the machinery for the purpose of depreciation on the said amount. this court in coimbatore pioneer mills ltd. v. cit : [1999]236itr69(mad) and cit v. india pistons ltd. : [2000]242itr672(mad) has considered the scope of explanation 8 to section 43(1) of the act and held that the explanation has been couched in the widest possible terms to avoid any further controversy in regard to the manner or mode of payment of interest or the time of payment for the interest. following the said decisions of this court in the cases of coimbatore pioneer mills ltd. (supra) and india pistons ltd. (supra), we answer the question of law referred to us in the negative, in favour of the revenue and against the assessee. however, in the circumstances of the case, there will be no order as to costs.