|COURT:||Allahabad High Court|
|CORAM:||D. Y. Chandrachud CJ, P. K. S. Baghel J|
|SECTION(S):||14A, 37(1), Rule 8D|
|CATCH WORDS:||business expenditure, capital expenditure, exempt income|
|DATE:||November 5, 2014 (Date of pronouncement)|
|DATE:||November 14, 2014 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|S. 14A/ Rule 8D: Interest expenditure attributable to a taxable business cannot be disallowed. Expenditure on creating assets which do not belong to the assessee is revenue expenditure|
(i) Once it was duly established that no borrowed funds on which interest was paid had been invested for earning tax free income, no disallowance was permissible under Section 14A. The Tribunal has observed that under Rule 8D(2)(ii), a proportionate disallownace out of interest expenditure would be made in respect of interest expenditure which is not directly attributable to any particular income or receipt. Since the entire interest expenditure, in the present case, was attributable to business in which the resultant income was assessable to tax, a disallowance could not be made.
(ii) The true test is whether the expenditure which has been incurred by the assessee is for the purpose of obtaining a commercial advantage in the capital field. In the present case, it is clearly evident that the power transmission lines which were laid by the assessee were, upon erection, to constitute the exclusive property of UPPCL. UPPCL was the only consumer of the electricity generated by the assessee.. The assessee incurred the expenditure to facilitate its own business. The fixed capital of the assessee was untouched and there was no capital accretion for the assessee (Empire Jute Co Ltd 124 ITR 1 (SC), L H Sugar Factory and Oil Mills 125 ITR 293 (SC), Gujarat Mineral Development Corp 249 ITR 787 (SC) & Coats Viyella India 253 ITR 667 (Mad) referred).