COMMISSIONER OF INCOME TAX-I LUDHIANA vs. M/S VARDHMAN POLYTEX LTD

ITA/55/2013HC Punjab & HaryanaPHHC01105265201323 May 2013Author: MR. JUSTICE HEMANT GUPTA,MS. JUSTICE RITU BAHRI2 pages
AI SummaryDismissed

What were the facts?

The Revenue has appealed an order dated September 17, 2012, passed by the Income Tax Appellate Tribunal (ITAT), Chandigarh Bench, concerning assessment year 1998-99. The dispute centers on whether interest paid on borrowed capital for establishing a new unit at Baddi should be treated as revenue expenditure or capitalized. The Assessing Officer had directed capitalization, relying on a jurisdictional High Court judgment. However, this High Court judgment was later set aside by the Supreme Court. The ITAT had ruled in favor of the assessee, following the Supreme Court's decision. The Revenue has framed substantial questions of law for the High Court's consideration.

What did the High Court hold?

The High Court held that in light of the Supreme Court's decision in Deputy Commissioner of Income Tax Vs. Core Health Care Limited (2008) 298 ITR 194, which had set aside the jurisdictional High Court's judgment in Commissioner of Income Tax Vs. Vardhman Polytex Ltd. (2008) 299 ITR 152, the substantial questions of law framed by the Revenue no longer arose for consideration. The ITAT had correctly followed the Supreme Court's precedent. Therefore, the appeal filed by the Revenue was dismissed. The operative direction was the dismissal of the appeal, with no issue left undecided.

What were the issues?

1. Whether, on the facts and circumstances, the ITAT was correct in quashing the CIT(Appeals) order by ignoring the Supreme Court judgment in Challapalli Sugar Ltd. & Anr. v. Commissioner of Income Tax, A.P and Anr. (1975) 98 ITR 167, which distinguishes between interest on borrowed capital for an existing business (revenue expenditure) and for a new business yet to commence (capitalized)? (Question of law) 2. Whether interest on borrowed funds used for setting up a new unit at Baddi before the asset was put to use should be capitalized under Section 36(1)(iii) of the Income Tax Act, 1961, or allowed as revenue expenditure? (Question of mixed law and fact) 3. Whether, on the facts and circumstances, the ITAT was correct in quashing the CIT(Appeals) order based on DCIT vs. Core Health Core Pvt. Ltd. 298 ITR 194, which the Revenue argues is not applicable, unlike the Supreme Court's decision in Challapalli Sugars Ltd.? (Question of law) Assessee's contention: The assessee claimed the interest payment as revenue expenditure. The ITAT decided in favor of the assessee, relying on the Supreme Court's judgment in Deputy Commissioner of Income Tax Vs. Core Health Care Limited (2008) 298 ITR 194. Revenue's contention: The Revenue argued that interest on borrowed funds for establishing a new unit should be capitalized, citing the principle from Challapalli Sugar Ltd. and questioning the ITAT's reliance on Core Health Care Pvt. Ltd. and its disregard for the jurisdictional High Court's earlier decision.

Which sections of the Income-tax Act were involved?

Section 36(1)(iii),Section 260-A

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH

I.T.A. No.55 of 2013 Date of Decision:23.05.2013 Commissioner of Income Tax-I, Ludhiana .....Appellant Vs. M/s Vardhman Polytex Ltd., Chandigarh .....Respondent CORAM: HON'BLE MR. JUSTICE HEMANT GUPTA HON'BLE MS. JUSTICE RITU BAHRI Present: Mr. Rajesh Katoch, Advocate for the appellant. HEMANT GUPTA, J.(Oral) The present appeal under Section 260-A of the Income Tax Act, 1961 arises out of an order dated 17.9.2012 passed by the Income Tax Appellate Tribunal, Chandigarh Bench `B', Chandigarh (for short, 'the Tribunal') in respect of assessment year 1998-99. The Revenue has claimed the following substantial questions of law:- “i) Whether, on the facts and circumstances of the case, the Hon'ble ITAT was right in law in quashing the order of the Ld. CIT (Appeals), ignoring the judgment of Challapalli Sugar Ltd. & Anr. v. Commissioner of Income Tax, A.P and Anr. (1975) 98 ITR 167, in which the Hon'ble Supreme Court has clearly brought out the fact that if the expenditure of interest has been incurred for the business which is already running than the same has

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