1996-VIL-16-MP-DT

Equivalent Citation: [1997] 226 ITR 253, 149 CTR 283, 92 TAXMANN 262

MADHYA PRADESH HIGH COURT

Date: 27.08.1996

COMMISSIONER OF INCOME-TAX

Vs

MALWA VANASPATI AND CHEMICAL COMPANY LIMITED

BENCH

Judge(s)  : A. R. TIWARI., SHAMBHOO SINGH 

JUDGMENT

The judgment of the court was delivered by

A. R. TIWARI J. --- The applicant (Commissioner of Income-tax, Bhopal), felt aggrieved by the order dated August 26, 1994, rendered by the Tribunal in I. T. A. Nos. 1088 and 1089/(Ind) of 1988 and I. T. A. No. 418/(Ind) of 1989 pertaining to the assessment years 1982-83, 1983-84 and 1984-85, respectively, and filed the applications registered as R. As. Nos. 102 to 104/(Ind) of 1994 for statement of the case and reference of the questions to this court for opinion. On these applications, the Tribunal stated the case and referred the questions, as extracted below, for consideration :

" (1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in law in holding that the interest paid/payable, on the funds borrowed and utilised for acquiring and erecting the plant and machinery of its undertaking at Village Sejwaya, District Dhar, is allowable as a revenue expenditure ?

(2) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in law in holding that the assessee's business activity relating to its unit at Village Sejwaya, District Dhar, constitutes an expansion of its business and not a different business distinct from its existing business at Indore and thereby holding that the interest paid on the borrowings for the setting up of that unit for the period prior to the commencement of production in that unit is allowable under section 36(1)(iii) of the Income-tax Act, 1961 ?

On R. A. No. 104/(Ind) of 1994, for the assessment year 1984-85, the Tribunal also referred the undernoted questions for consideration :

" Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in law in quashing the order dated March 20, 1981, passed by the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961?"

Briefly stated, the facts of the case are that the assessee-company was engaged in the manufacture, processing and sale of vegetable oil, etc. It took steps to set up a new unit at Sejwaya for the manufacture of H. J. and tobias acid. For this purpose, the assessee borrowed funds and utilised the same in the purchase of plant and machinery. During the assessment year 1983-84, the assessee claimed the deduction of a sum of Rs. 8,10,220, being the interest paid on the various term loans. Since no production had commenced till the close of the accounting year, the Assessing Officer opined that the payment of interest on the borrowed funds would constitute the cost of plant and machinery and the deduction claimed was not allowable. The action of the Assessing Officer was upheld in appeal by the Commissioner of Income-tax (Appeals). Thereupon, the assessee carried the matter via appeal before the Tribunal. It was contended on behalf of the assessee that the new unit was part and parcel of its existing business and the borrowed funds had been utilised in the same business and, therefore, the interest paid/payable was required to be allowed as deduction under section 36(1)(iii) of the Income-tax Act, 1961. It was thus contended that the business was not new but an expansion of existing business. The Tribunal by its order dated April 9, 1986, demolished the order and directed reconsideration of the question as in the opinion of the Tribunal sufficient material was not available on the record. Pursuant to this order, the Commissioner of Income-tax (Appeals) again considered the issue an on scrutiny of the material held that it was a case of expansion of business and thus directed that the interest paid was clearly admissible under section 36(1)(iii) of the Act. Aggrieved, the Revenue filed the appeal before the Tribunal. The Tribunal reappreciated the factual matrix and concluded in favour of the assessee. The issue was thus decided in favour of the assessee. Dissatisfied by the order of the Tribunal, the Revenue filed the applications under section 256(1) of the Act for the aforesaid assessment years. On these applications, the Tribunal stated the case and referred the aforesaid questions, pertaining to the aforesaid assessment years, for our opinion.

We have heard Shri Vivek Sharan, learned counsel for the applicant/ Revenue, and Shri Saboo, learned counsel for the non-applicant/assessee. Shri Saboo contended that the conclusion is based on appreciation of facts and warrants no interference.

The core question is whether erection of plant and machinery at Village Sejwaya, District Dhar, constituted expansion of business of the assessee or a new unit different from the existing business ? In other words, can it be said that the amount of interest paid in respect of the loan (capital) borrowed is relatable to purposes of the business of the assessee ?

Section 28 of the Act is captioned " Profits and gains of business or profession ". It contains particulars of income chargeable to income-tax. Section 36 catalogues the deductions provided for in computing the income referred to in section 28. Clause (iii) of sub-section (1) of section 36 permits deduction of :

" The amount of the interest paid in respect of capital borrowed for the purpose of the business or profession. "

It is in this context that the assessing authorities were required to scrutinise whether the loan, i.e., capital was borrowed from the M. P. F. C. for the purposes of the business of the assessee and, if so, whether the amount of the interest paid in respect of capital assumed the character of permissible deduction in terms of section 36(1)(iii) while doing computation of income under section 28 ? The answer thus depended on scrutiny as to whether or not the business at Village Sejwaya, District Dhar, is the business of the assessee itself or is a new business, unconnected with the existing business of the assessee, immune from the benefit of the clause for deduction in the computation of income.

Now is the stage to focus on the facts. A loan was procured from the M. P. F. C. to set up the unit at Sejwaya. This loan amount was utilised for the purchase of plant and machinery to be installed at Sejwaya. The assessee paid interest on this amount and claimed deduction. The Assessing Officer had negatived the claim. The order was upheld by the Commissioner of Income-tax (Appeals). In further appeal, the Tribunal agreed in principle with the contention of the assessee to the effect that it may be an expansion of business but found that this aspect was required to be determined on the facts and circumstances. In the absence of sufficient material to show inter-connection, interlacing, interdependence, common management, common funds, common place of business, the Tribunal demolished the order of the Commissioner of Income-tax (Appeals) and remitted to him the matter to be re-examined afresh in accordance with law. The Commissioner of Income-tax (Appeals) afforded opportunity to both the sides and found as a fact on scrutiny that it was a case of expansion of business attracting deduction under section 36(1)(iii). The Department filed appeal before the Tribunal. The Tribunal, on second inning of the litigation, sustained the finding of fact, recorded by the Commissioner of Income-tax (Appeals) on remand, and upheld the direction for deduction of the amount of interest on the linchpin of " purposes of the business " of the assessee.

The direction is based on the undernoted facts and features :

(i) The business at Sejwaya is in accord with clauses 3 and 5 of the memorandum/articles of association of the assessee-company.

(ii) The assessee borrowed a loan from the M. P. F. C. on interest to set up a unit at Sejwaya with a surge of an urge to expand its business and utilised the same, along with, some funds available with it, in purchase and installation of plant and machinery to accomplish it.

(iii) The assessee-company manufactured chemicals besides vanaspati, etc., and the unit at Sejwaya was set up to manufacture H. J. and tobias acid used in the dyes and intermediate industries.

(iv) The funds were common. The management was common. The board of directors was same. The loan was borrowed in the name of the assessee. In the application for the loan ; the purpose was shown as " Diversification project ". In the tax registration certificate, the unit at Sejwaya was shown as " additional business place of the assessee-company ". Existing funds were also utilised for this unit. Expenditure incurred was reflected in the profit and loss account and balance-sheet of the assessee-company. There was thus inter-connection, interlacing, interdependence, common management and common funds. Different places of business owned by the assessee, made no dent on the claim to eligibility.

On these facts and features, the Tribunal held that " all these facts go to indicate that the setting up of the new project at Sejwaya was only an expansion of the existing business of the assessee-company and it cannot be treated as a new line of business or a distinct business activity ". The setting up of the unit at a place, a little away from the business place of the assessee-company, was held to be of little consequence.

Prem Spinning and Weaving Mills Co. Ltd. v. CIT [1975] 98 ITR 20 (All) ; CIT v. Alembic Glass Industries Ltd. [1976] 103 ITR 715 (Guj) and Kanhiram Ramgopal v. CIT [1988] 170 ITR 41 (MP), tore up tenebrosity and illumined the path.

The finding, evidently on a firm foundation, is reached on a proper appreciation of facts. The conclusion so reached does not give rise to referable questions of law. In CIT v. Ashoka Marketing Ltd. [1976] 103 ITR 543 (SC) and in CIT v. Kotrika Venkataswamy and Sons [1971] 79 ITR 499 (SC), it is held that a conclusion based on appreciation of facts does not give rise to any question of law. Yet the Tribunal resorted to section 256(1) and referred the aforesaid three questions. Luculently, the conclusion that the case stood covered under section 36(1)(iii) and as such deduction was permissible is a question of fact and not of law. The questions do not indicate the impugnment oh the ground of either perversity " of conclusion " or " absence of material " for such a conclusion to seek invalidation of the inference.

The Tribunal knows or ought to know that the jurisdiction of this court in such matters is only advisory in nature and is not like the appellate or revisional jurisdiction. Advice or opinion can thus be sought only on a question of law. Such is not the case here. In A. Gasper v. CIT [1991] 192 ITR 382 (SC), it is held that the jurisdiction is advisory in nature.

In the face of the conclusion recorded on appreciation of facts, which is not questioned as perverse or as being without evidentiary backing, what advice or opinion is sought or is required to be tendered ? In our view, such references are not desirable and do indicate the flaw and fault. Carlyle once observed in Heroes and Hero-worship that " The greatest of faults, I should say, is to be conscious of none ". In our view, the Revenue should be conscious of the desirability of avoiding the occasion for such inferences and of bearing in mind the legal position enunciated by the apex court in Mohinder Singh Gill v. Chief Election Commissioner, AIR 1978 SC 851 ; [1978] 2 SCR 272, 317 that :

" Independently of natural justice, judicial review extends to an examination of the order as to its being perverse, irrational, bereft of application of the mind or without any evidentiary backing.

The questions, as referred, however, do not cover any of these ingredients. Hence, the view is proper and review in advisory jurisdiction is impermissible. Attitude needs to be changed. It is time that all concerned remembered the observations of Walden Thoreau that " Things do not change, we change ".

In the result, we hold that the Tribunal took the view which is perfect in logic and permissible in law. We, therefore, answer these three questions in the affirmative, i.e., in favour of the assessee and against the Revenue.

This income-tax reference is, thus, decided as noted above but with no orders as to costs. Counsel fee for each side is, however, fixed at Rs. 750, if certified.

Transmit a copy of this order to the Tribunal.

 

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