INDIA CEMENTS LTD., MADRAS versus COMMISSIONER OF INCOME-TAX, MADRAS

Citation: [1966] 2 S.C.R. 944 · Decided: 08-12-1965 · Supreme Court of India · Bench: K. SUBBA RAO · Disposal: Appeal(s) allowed

Cited by 1 judgment(s) · cites 4 · see the full citation network in Lexace

Judgment (excerpt)

944 
INDIA CEMENTS LTD., MADRAS 
v. 
COMMISSIONER OF INCOME-TAX, MADRAS 
December 8, 1965 
(K. SUBBA RAO, J. C. SHAH AND S. M. SIKRI, JJ.J 
Indian Income-tax Act, 1922, s. 10(2) (xv)--cLoan obtained by com· 
pany-Stamp duty 
and other 
exp.enditure 
incurred in 
obtaining 
the 
Joan-Whether· capital or revenue 
expenditure-Whether laid 
out for 
purpose of business. 
During the accounting period relevant for the assessment yea'f 1950-51 
the appellant company obtained a loan of 40 Jakhs of rupees from the 
Industrial Finance Corporation 
of India. 
The loan 
was secured by a 
charge on the fixed assets of the company. A sum of Rs. 84,633 was 
shown in the Balance Sheet for 
the said accounting 
year as mortgage 
loan expenses; the sum was not cha-rged as expenditure in the pro.fit and 
loss account. 
In the accounts for the accounting year ending March 31, 
1953, this sum was written off by appropriation against profits of that 
year. The Income-tax Officer disallowed the deduction; he held that the 
expenditure was incurred in obtaining capital and should be distinguish-
ed from interest on borrowed capital which 
alone 
was admissible as a 
deduction under s. 10(2) (iii). Jn his 
view the expenditure was of a 
capital nature and therefore not admissible under s. 10(2) (xv) 
either. 
After intermediate proceedings the High Court in reference gave a finding 
upholding the view of the Income-tax Officer. 
The appellant by special 
leave, came to this Court. 
It was contended on behalf of the. appellant that : (I) the expenditure 
in question was not incurred to acquire any asset or advantage of an en-
during nature; (2) it was applied wholly and exclusively for the purposes 
of the business; and (3) was admissible as a deduction under S. 10(2)(xv). 
HELD : In the circumstances of the case the expenditure in question 
was revenue expenditure within s. 10 (2) (xv). 
(i) When there is no express prohibition, an outgoing, by means of 
which an assessee procures the use of a thing by which it makes a profit, 
is deductible from the ·receipts of the business to ascertain 
taxable in-
come. 
On the facts of the instant case, the money secured by the loan 
was the thing for the use of which this expenditure was made. 
In prin-
ciple, apart from any :stat.utory provisions, 
there is no distinction, 
as 
drawn by the Income-tax Officer, between interest in respect of a loan and 
an expenditure incurred for obtaining the loan. [950 G-H] 
(ii) A loan obtained cannot be treated as an asset or advantage for 
the enduring benefit of the business of the assessee. 
A loan is a liability 
.and has to be repaid and it is erroneous to consider a liability as an asset 
or an advantage. [955 CJ 
(iii) The nature of the expenditure incurred in raising a loan cannot 
be made to depend on the nature and purpose of the loan. A loan may 
be intended to be used for the purchase of raw material when it is nego-
tiated but the company may after raising the loan change its mind and 
spend it on securing capital assets. [955-H-956 BJ 
A 
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I 
INDIA CEMENTS V. c. 1. r. (Sikri, ]. ) 
945 
A 
(iv) The loan was voluntarily entered into in order to facilitate the 
running of the business of the company and it could not be said that it 
was not laid out wholly and exclusively for the purpose of the business. 
[958 BJ 
Case la\V considered. 
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1106 of 
B 
1964. 
Appeal by special leave from the judgment and order dated 
the October 31, 1961 of the Madras High Court in Tax Case 
No. 67 of 1958. 
C 
A. V. Viswanatha Sastri, R. Ve11kataraman and R. Gopa/a-
krishnan, for the appellant. 
D 
E 
S. T. Desai, Gopal Singh, B. R. G. K. Achar and R. N. 
Sachthey, for the respondent. 
The Judgment of the Court was delivered by 
Sikri, J. 
This appeal by special leave is directed against the 
judgment of the High Court of Judicature at Madras answering 
the following question of law in favour of the respondent : 
"Whether on the facts and in the circumstances of 
the case, the Tribunal was right in law in holding that 
the sum of rupees 84,633/- expended by the assessee 
in obtaining the loan or· any part thereof is an allow-
able expenditure ?" 
The facts and circumstances of the case as stated by the 
Tribunal in the statement of the case are as follows : The appel-
F 
!ant, India Cements Limited, Madras, hereinafter referred to as 
,· 
the assessee, is a public limited compa

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