|CORAM:||D. Manmohan VP, Sanjay Arora (AM)|
|SECTION(S):||41(1), 45, 48|
|CATCH WORDS:||cessation, cost of acquisition, Interest, liability, remission, unclaimed liabilities|
|COUNSEL:||S. V. Joshi|
|DATE:||May 22, 2015 (Date of pronouncement)|
|DATE:||June 2, 2015 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|(i) S. 48: Interest paid on moneys borrowed to acquire assets cannot be treated as the 'cost of acquisition' of the asset, (ii) S. 41(1): Unclaimed liabilities are deemed to have been remitted/ ceased and are taxable in the year of discovery by AO|
(i) The assessee has claimed the interest cost as a part of the cost of acquisition and/or improvement (without actually specifying the same), so that we shall, as was the Revenue, obliged to consider it under either category; the said two costs being specified as eligible deductions u/s.48(ii). The first question, therefore, that arises is as to how is the interest cost relating to borrowings made to finance the acquisition of a capital asset, could be considered as toward its acquisition, which is already complete on the passing of the property therein to its owner-holder. The question, as would be apparent, is broader, including within its ambit, all forms of capital assets. That is, how does it, in any manner, promote or is toward acquiring the asset/shares, which would be borrowing itself. The interest cost is toward the retention of the borrowing and, concomitantly, the retention or the holding of the asset under reference, i.e., is a function of the holding period. It is, thus, rightly described as a holding cost or a period cost, depending upon how one may look at it. This difference is again of relevance in-as-much as the asset may be sold/realized without the repayment of the debt, so that the interest cost continues independent of the asset. Again, the debt may be repaid/liquidated, extinguishing the interest cost, while the holding of the asset continues. That is, even the holding cost relationship is not automatic or follows as a natural corollary. The two, i.e., the interest cost and cost of the asset, are in any case independent of each other. So, however, it shall not be wrong to describe the interest cost as a period cost, chargeable against the income of the enterprise for the relevant period, against its income from the assets, including the asset under reference, deployed for its activity. Coming back to the acquisition, the said process or event is complete on the transfer of the relevant capital asset to the assessee. The interest cost for the post acquisition period, as would be apparent from the foregoing, does not in any manner contribute toward the same, which process stands completed on the transfer. The same is, at best, a holding cost of the asset and, therefore, revenue in nature, to be, as such, expensed as a period cost for the relevant period. That in fact is precisely what the assessee had done after acquiring the asset in the instant case as well (CIT vs. Maithreya Pai  152 ITR 247 (Kar.); Shri Mahendra C. Shah vs. Addl. CIT  140 TTJ 16 (Mum); S. Balan vs. Dy. CIT  120 ITD 469 (Pune) distinguished).
(ii) The deeming in the case of section 41(1)(a), applicable in the instant case, is qua the benefit by way of cessation or remission of a trade liability in respect of an expenses of business or profession, as the income of business or profession for the year of such cessation or remission. Our second observation is that the cessation or remission of liability is a matter of fact, and which would therefore require being proved. The onus to establish that the conditions of taxability stand satisfied is always on the Revenue. In the present case, the Revenue states of the liabilities continuing to outstand in the assessee’s books from 3 to 25 years. Surely, the same raises considerable doubts as to the existence of the liability/s. True, they stand not written back and continue to outstand in the assessee’s books, but that is precisely the reason for the same being questioned by the Revenue, or entertaining doubts about the same. The doubt can by no means be considered as not valid, being in accord with the common practice and, thus, discharging the onus that law places on the Revenue. The accounting entries or the treatment that the assessee accords to an asset or liability in its books is not determinative of the matter. Again, the presumption would only be of the same representing the true state of affairs, but the inordinate delay in discharging the same raises considerable and valid doubt as to the existence of those liabilities as at the relevant year-end, i.e., as a fact. The onus on the Revenue, thus, gets discharged and shifts to the assessee, who is in effect only being called upon to show that the position as stated in its accounts reflects the true and correct position. A trading liability would normally get settled within a period of one or two months of it’s arising, while in the instant case years and years have passed. The same leads to the question: Why were the same not paid in the normal course and, rather, not paid at all? Is the matter disputed – if so, to what extent, and which shall again have to be demonstrated. In fact, after the lapse of considerable time, it becomes doubtful if the creditor exists, who may have moved to a different place; discontinued business, et. al. No material or evidence or even explanation is forthcoming from the assessee. The only inference under the circumstances is that the liability no longer exists. Per contra, the assessee has obtained a benefit by way of remission or as the case may be cessation of liability. An inference of fact is again only a finding of fact, drawn in consistence and in harmony with in the conspectus of the facts and circumstances of the case. The next question that arises is as to the year of taxability, and which is the year of remission or cessation of liability. The assessee having claimed it as a liability for the immediately preceding year as well, and which stood accepted by the Revenue, would preclude the assessee from contending that the liability was not existing, or was in fact not a liability even as at the end of the immediately preceding year. That is, it is not open for the assessee to turn back and say that you accepted my lie for the preceding year/s and, therefore, you are bound by it. The only consequence in law is that the cessation or remission has occurred during the relevant previous year. We are in this regard, with respect, unable to agree with the hon’ble high court in the case of Bhogilal Ramjibhai Atara (supra) that the law is not clueless in this regard; the said decision having been rendered without considering the decision by the said court in Hides & Leather Products Pvt. Ltd.  101 ITR 61 (Guj) It needs to be appreciated that when the knowledge of the facts is in the possession of a particular person, it is he alone who can, and whom the law contemplates to exhibit it, in the absence of which an adverse inference, as applicable under the circumstances, shall obtain.