1. This is a reference under section 66(1) of the Indian Income-tax Act, 1922.
2. The assessee is a public limited company. The assessment year relevant to this reference is 1956-57, the corresponding accounting year being the year ended on 30th June, 1955. During the accounting year the assessee-company incurred expenditure of Rs. 1,28,401 in connection with the issue of debentures. The loan secured by the debentures was Rs. 50,00,000. The loan was obtained from the Industrial Finance Corporation. To secure the loan a mortgage was created by a debenture trust deed dated the 23rd December, 1953. Under clause 7 and 24 (h) of the debenture trust deed, the assessee-company was under an obligation to use the monies raised by the issue of the debentures for erecting, constructing, reinstating or restoring it buildings or structure and for acquiring or installing plant and machinery required for the business of the assessee-company. The assessee claimed the said sum of Rs. 1,28,401 in the above assessment year as a deductible expenditure under section 10(2)(xv) or failing that, in the alternative, that it should from part of the actual cost of the assets acquired with the monies borrowed and be taken into account in the calculation of depreciation and development rebate under section 10(2)(vi) and (vib) respectively. The Tribunal has rejected both these claims.
3. The following two questions of law have been referred :
'1. Whether, on the facts and in the circumstances of the case, the amount of Rs. 1,28,401 was an admissible deduction in arriving at the assessable business profits of the company and
2. If the answer to the first question is in the negative, whether on the facts and in the circumstances of the case, the amount of Rs. 1,28,410 would form part of the actual cost of the assets acquired with the many borrowed, by reference to which depreciation and development rebate under section 10(2)(vi) and (vib) respectively were to be computed ?'
4. Now, the principles laid down by the Supreme Court in its judgment in India Cements Ltd. v. Commissioner of Income-tax have a direct application in the case before us. In that case the amount spent for stamp duty, registration fee, lawyer's fees, etc., in respect of the issue of debentures to secure a loan was claimed as business expenditure. It was held that the amount spent was not in the nature of capital expenditure. and was laid out or expended wholly and exclusively for the purpose of the assessee's business and was, therefore, allowable as a deduction under section 10(2)(xv). It was held that the act of borrowing money was incidental to the carrying on of business, the loan obtained was not an asset or an advantage of enduring nature, the expenditure was made for securing the use of money for a certain period and it was irrelevant to consider the object with which the loan was obtained.
5. Mr. Joshi, the learned counsel for the department, contended that in the case before us, under the terms of the debenture trust deed, the assessee-company was under an obligation to spend the amount borrowed for construction or repairing of it buildings and for acquiring plant and machinery and that, therefore, in our case, the loan was clearly for acquisition of capital assets. He contended that, therefore, the expenditure incurred in connection with the borrowing of the loan and the creation of debenture trust deed cannot be deemed to have been incurred as and by way of revenue expenditure. In our opinion, the distinction sought to be made by Mr. Joshi is untenable, in view of the fact that the Supreme Court has held that it is irrelevant to consider the object with which the loan was obtained.
6. In the result, on the basis of the principles laid down by the Supreme Court, this expenditure must be treated as revenue expenditure deductible under section 10(2)(xv).
7. We, therefore, answer question No. 1 in the affirmative.
8. Question No. 2 has been raised for being answered 'if the answer to the first question is in the negative.' As our answer to the first question is in the affirmative, consideration of the second question does not arise and we, therefore, do not answer it.
9. The respondent to pay the assessee-company's costs.