Dy. Commissioner v. MTZ Polyfilms Ltd. ITAT ‘B’ Bench, Mumbai Before N. V. Vasudevan (JM) and Pramod Kumar (AM) ITA No. 5015/Mum./2009 A.Y.: 2004-05. Decided on: 30-12-2011 Counsel for revenue/assessee: P. C. Mourya/ Jitendra Jain

Facts:
The assessee was engaged in the business of manufacturing of polyester films. It had its manufacturing facilities at GIDC, Gujarat. It was allotted plot of land by GIDC. As per the terms of allotment the assessee was required to pay the purchase consideration of the land in instalments with interest. For the year under consideration the assessee had paid the sum of Rs.99.97 lakh as interest to GIDC and the same was claimed as business expenditure. According to the AO the expenditure was of capital in nature. On appeal the CIT(A) allowed the appeal and held that the expenditure was of revenue in nature.

Before the Tribunal the Revenue supported the order of the AO and further contended that since the interest to GIDC was unpaid, it is not allowable u/s.43B.

Held:
The Tribunal, as per the order of the CIT(A), noted that the fact that the production by the assessee had commenced in October, 1988 was not controverted. Accordingly, it held that the interest paid during the year cannot be considered as capital expenditure. Further, it referred to the decision of the Supreme Court in the case of Bombay Steam Navigation Co. Pvt. Ltd. v. CIT, (1953) (56 ITR 52), where the interest paid on purchase consideration of the assets by the amalgamated company was held as allowable as business expenditure u/s. 10(2)(xv) of the 1922 Act (equivalent to section 37(1) of the 1961 Act) According to the Apex Court, the expression ‘capital’ used in section 10(2)(iii) of the 1922 Act (equivalent to section 36(1)(iii) of the 1961 Act), in the context in which it occurred, meant money and not any other asset. The Apex Court further observed that an agreement to pay the balance consideration due by the purchaser did not in truth give rise to a loan. On that basis the Apex Court held that the interest paid was not allowable as deduction u/s.10(2)(iii) of the 1922 Act, but as business expenditure u/s.10(2) (xv) of the 1922 Act. Applying the above ratio, the Tribunal held that the interest paid to GIDC by the assessee was allowable u/s.37(1). It further agreed with the assessee that the provisions of section 43B would also not apply to the facts of the present case, since unpaid sale consideration cannot be said to be monies borrowed.