The appellant obtained a loan of Rs. 40 lakhs from the Industrial Finance Corporation secured by a charge on its fixed assets. In connection therewith it\u00a0 spent a sum of Rs. 84,633 towards stamp duty, registration fees, lawyer\u2019s fees, etc., and claimed this amount as business expenditure. The ITO held that the expenditure was incurred in obtaining capital and should be distinguished from interest on borrowed capital which was alone admissible as a deduction. The Commissioner (Appeals) confirmed the order of the ITO. The Tribunal\u00a0 was\u00a0 of the view that the whole of the mortgage loan was used firstly to discharge the\u00a0 \u00a0loan of Rs. 25 lakhs and the balance for working funds and, as such, the whole\u00a0\u00a0\u00a0\u00a0\u00a0 of the amount was purely for the purposes of augmenting the working capital of\u00a0 the company and that it could not be stated that it was used for capital purposes. Accordingly, the claim was allowed.<\/p>\n
On reference, the High Court restored the ITO\u2019s order. It held that the borrowings were an advantage which the company derived for the duration of the loan and thus, capital in nature.<\/p>\n
\u00a0<\/p>\n
Whether the amounts expended by the assessee in obtaining the loan in the nature of stamp duty, registration fees, lawyer\u2019s fees, etc., were allowable as a deduction under section 37(1)?<\/p>\n
\u00a0<\/p>\n
Where there is no express prohibition, an outgoing, by means of which an assessee procures the use of a thing by which it makes a profit,\u00a0 is deductible from the receipts of the business to ascertain the taxable income. Further, obtaining capital by issue of shares is different from obtaining loan by debentures. A loan obtained cannot be treated as an asset or advantage for the enduring benefit of\u00a0\u00a0\u00a0\u00a0 the business of the assessee.<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
On appeal reversing the High Court judgement, the Supreme Court 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\u2019s business and was, therefore, allowable as a deduction under section 37(1). The act of borrowing money was incidental to the carrying on of\u00a0 business, the\u00a0 loan\u00a0 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\u00a0\u00a0 the object with which the loan was obtained. (AY. 1950-51) (CA No. 1106 of 1964\u00a0 dt. 8-12-1965<\/p>\n
Editorial: <\/em><\/strong>Followed in Jeevanlal v. CIT (1969) 74 ITR 753 (SC) <\/em><\/strong>and Madras Industrial Investment Corp. v. CIT (1997) 225 ITR 802 (SC)<\/em><\/strong><\/p>\n \u201cThe future depends on what you do today.\u201d<\/em><\/p>\n – Mahatma Gandhi<\/p>\n \u00a0<\/em><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":" S. 37(1): Business expenditure \u2014 Capital or revenue \u2013 Loan taken on mortgage of fixed assets \u2014 Amount spent towards stamps, registration fees, lawyer\u2019s fees, etc. for availing loan \u2013 Loan neither an asset nor any business advantage nor any enduring benefit to the assessee – Nature of expenditure incurred in raising a loan not dependent upon nature and purpose of loan – Allowable business expenditure. [Indian Income-tax Act, 1922, 10(2)(xv) ]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21],"tags":[],"class_list":["post-13322","post","type-post","status-publish","format-standard","hentry","category-income-tax-act"],"acf":[],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/p9S2Rw-3sS","jetpack-related-posts":[],"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts\/13322","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/comments?post=13322"}],"version-history":[{"count":1,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts\/13322\/revisions"}],"predecessor-version":[{"id":13323,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts\/13322\/revisions\/13323"}],"wp:attachment":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/media?parent=13322"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/categories?post=13322"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/tags?post=13322"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}