Law:

Section:

Section 37(1) of the Income-tax Act, 1961 [Corresponding to section 10(2)(xv) of the Indian Income-tax Act, 1922] - Business expenditure - Allowability of - Assessment year 1956-57 - Whether where assessee company second loan by mortgage of debentures trust deed and as obliged under said deed it spend amount borrowed for construction or repairing of its building and for acquiring plant and machinery, amount spent by assessee must be treated as revenue expenditures Held, yes FACTS During the accounting year relevant to assessment year 1956-57, the assessee company in order to secure the loan created a mortgage by a debenture trust deed. Under 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 its buildings or structures and for acquiring or installing plant and machinery required for the business of the assessee-company. The assessee claimed the said sum in the relevant assessment year as a deductible expenditure under section 10(2)(xv) of the 1922 Act. The Tribunal disallowed the assessee's claim. On reference: HELD Following the decision of the Supreme Court in the case of India Cements Ltd. v. CIT [1966] 60 ITR 52 : [1966] 2 SCR 944 (SC), it was to be held in the instant case, that the expenditure must be treated as revenue expenditure deductible under section 10(2)(xv).of the 1922 Act. Note: The case has been decided in favour of the assessee. CASE REFERRED TO India Cements Ltd. v. CIT [1966] 60 ITR 52 , [1966] 2 SCR 944 (SC). JUDGMENT Mody, J.-This is a reference under section 66(1) of the Indian Income-tax Act, 1922. 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.…

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