t-" :::> 0u J: (!)-J: <Cz ~ c:::«J: cz« CD«,z ::,:) c.. Income Tax Appeal NO.9 of 2011 1 n ~ IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. "~ Income Tax Appeal No.9 of 2011 Date of decision: 7.4.2011 Mis. Nahar Poly Films ltd. n- Appellant -, Versus The Commissioner of Income Tax ludhiana --- Respondent CORAM: HON'BlE MR. JUSTICE ADARSH KUMAR GOEl HON'BlE MR. JUSTICE AJAY KUMAR MITrAL. Present: Mr. Sanjay Bansal, Senior Advocate with Mr.Anurag Goyal, Advocate for the appellant-assessee. AJAY KUMAR MITrAL, J. , , This appeal under Section 260A of the Inc~me-Tax Act, 1961 , I ' , " (for shprt "the Act") has been filed by the assessee against the order dated 24.5.2010, passed by the Income Tax Appellate Tribunal Chandi~arh Bench 'A', Chandigarh (in short "the Tribunal") in ITA No. 146/CHANDI/09,relating to the assessment year 2006-07. 2. The followingsubstantial questions of law have been claimed for determination of this Court: . a) Whether on the facts and circumstances of the case, the Tribunal acted illegally and perversely, in holding that the -- ~::t. ""- I J- et:: :::J 0U J: ,(!)-J:«z~ Q:: <3: J: 0 Z« QJ«.., z ':::> a.. , Income Tax Appeal NO.9 of 2011 '2 interest of Rs. 9,05,976/- paid by the appellant on "Term Loan raised for acquiring asset in its existing business is disallowable in view of proviso to Section 36( 1)(iii) of the Act? b) Whether on the facts and circumstances of the, case, the Tribunal acted perversely in interpreting the words 'Expansion and Extension' as synonymous in spite of the fact these two I words have been used in the different sections separately and , carry different meaning? c) Whether on the facts and circumstances of the, case, the Tribunal acted perversely and illegally in holding thqt increase in spindle capacity in appellant's Unit is extension of business? 3. The facts, in brief, necessary for adjudication as narrated in the appeal, 'are that the assesseeraised a term loan of Rs. 30,61,00,000/- from Canara Bank, and another sum of Rs. 7,98,00,000/- from the Punjab National Bank for acquisitioning the assets for its existing business and paid interest on the term loan so raised. The assessee claimed the amount of interest paid as revenue expenditure under $ection '36(1)(iii) of , , the Act. For the assessment year in question, the assessee filed its income tax return at the total income of Rs. 33,86,25,911/-. The assessipg officer, however, vide order dated 21.1.2008, computed the ! , - i total ipcome of the assessee at Rs. 34,07,33,922/- by making disallowance of some amounts including the amount paid as interest. 4. The Commissioner of Income-tax (Appeals) {in short "the C!T(A)''} sustained the disallowance made by the assessing officer and , , dismissed the appeal of the assesseevide order dated 12.1.20Q9.' ~~ I- ~ => 0U :I: c..?-:J: <!z~ .~ ~:I: oCS CO« Jz :::> a.. Jncome Tax Appeal No.9 of 2011 3 5; The Tribunal upheld the orders of the lower authorities, i.e. the Assessing Officer and the CIT(A),and dismissed the assessee's appeal videthe order under appeal. 6. This is how the assessee is once again in appeal before us. 7. We have heard learned counsel for the assessee and have perused the record. 8. The only point that arises for consideration in this case is, whether the interest paid by the assessee on the borrowing~made for purchase of the machineryin the facts of the present case was hit by the proviso to Section 36(1)(iii) of the Act and was inadmissible revenue expense. 9. Learned counsel for the assessee submitted that there was no extension of business and, therefore, the provisoto Section 36(1)(iii) did not apply. Accordingto the learned counsel, it was only an expansion in business which had taken place and the same was not covered within the term 'extension'. Learnedcounsel argued that in Section36(1)(iii)the word extension has been used whereas Sections aD IC(8)(ix) and 80 , IE(7)(iii) contain the word expansion. Furth€br the expression [ . restructuring and reconstruction has been stated in Section 80 ID(3)(i), 80IB~nd 33Bof the Act.Section80 IA(4)(iv)has the term renovationand I mode~nisation mentioned therein. Elaborating his submissions, the learned counsel urged that the legislature has used different words in different Sections whichcarry different meanings. The counselrelied upon . , two judgments of the HighCourtof Delhi,in Commissioner ,ofIncome- tax v. Modi Industries, 200 ITR 341 (Delhi) and Commissioner of Income Tax v. Relaxo Footwears Ltd., 293 ITR 231 (Delhi). - t .. -- eal No.9 of 2011 4 It would be expedient to reproduce Section 36(1)(iii) of the "Other deductions. 36. (1) The deduction provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in t ' computingthe incomereferred to in section 28- ... ) I- a:: .::> 0 U :J: (!)- :J:« Z ~ a:: <C :J: C Z« ca«.,z:Ja. (iii) the amount of the interest paid in respect ,of capital borrowed for the purposes of the business or profes$ion: Provided that any amount of the interest paid, in respect of capital borrowed for acquisition of an asset for extension of existing business or profession (whether capitalised in the books of account or not); for any period begiriningfrom the date on which the capital was borrowed for acquisitionof the , asset till the date on which such asset was first,pLitto use, shall not be allowedas deduction. Explanation- Recurring subscriptions p~id periodically by . ! share-holders, or subscribers in Mutual Ben~fit Societies which. fulfil such conditions as may be prescribed, shall be deemed to be capital borrowed within the meaning of this clause;If I 11. The effect of proviso to Section 36( l)(iii) inserted by the Finance Act, 2003 w.eJ. 1.4.2004 relating to assessment year 2004-05 and subsequent years is to disallow interest on moneys borrowed for acquiring a capital asset till the date on whichthe asset was brought to use even if it is for extension of existing business. ~- ~ -~--~ --- 5 t~rconsidering the issue, we do not find any-substance in of the learned counsel. It would at the first place be quite a glimpse of the dictionary meanings of the two words. to Chambers 21st.Century Dictionary; the me,aning of word I II , ' inter alia, is the process of extending something or the state of being extended, an added part that makes the originallarger or longer l- e=: ::J 0U :I: (!)-:I:« Z«:> ~ ~J: ;~ 1) ~ "'"') ?,-':J whereas the meaning of the word "expansion" is 'the act Qr state of expanding. The distinction between "Extension"and "Expansion"as has been sought to be projected by the assessee does not carry any persuasion as there is no real distinction between the two as suggested by the counsel. Even ifthe distinctionas professed by the learned counsel in the terms "Extension"and "'Expansion"is taken to exist stillthe plea of the assessee does not inspire acceptance as "Expansion"would be wider and embrace "Extensiori"withinit. The Tribunal had recorded'a'finding of fact that there was extension of the assessee's business as it had purchased the assets for the same by borrowing capital from the banks I - and, therefore, it was not entitled to deduction under ~ection 36(1)(iii)of i ' ' i the Act.The relevant observations of the Tribunal,in p~ra Nos. 20 and 21 of the $rder are as under: "20. The facts of the present case before us' are that the assessee was running a unit with spindle capacity 153664 spindles whichwas increased to 201664 spindles by putting up new machinery. This exercise of increasing the' capacity amounts to the process of enlarging and/or extending the existing capacity and hence is a case of extension of ex!sting business. It can by no stretch be called as acquisition of ~;""."- ,- -- 1IImiI- ~, '.:1 ",..,...,- ""'''_00 -~--- I\ t- n:: -::) 0 (.) ::J: C)-::J: «z~ ~« :.t: ~ CO« ...,z :::) c.. ADceal NO.9 of 2011 6 issets for the existing business as even in the director's ---report, the managing director talks about the changing global textile scenario,'and the role of capacities and up-gradation of technology in the success of business wh,ich was the .instrument for increasing the spindle capacity which, in turn, was to be financed by the term loan raised by the assessee company during the year. In the facts before the Hon'ble Delhi High Court in CIT Vs Modi Industries Ltd. (Supra) relied upon by the assessee, person was engaged in the business of manufacture of diverse items and a new item was added to its manufacturing business, whereas there was complete unity or control and utilisation of common funds and it was held that , - - the business of manufacturing of new items was,an extension of the business and not a new business. In the facts before us, though the same line of business is being carried on but scope of production has been enlarged by increas~n.9the spindle capacity and the same is extension of business by the assessee. Consequently, the provisions ofiproviso to 36(1)(iii) , are applicable in the case. 21. The plea of the assesseebefore us was that the increased - , capacity amounts to expansion of business.'and is not extension of business envisaged in the proviso 'to Section 36(1)(iii). The dictionary meaning of the word 'expand' or as per the Concise Oxford English Dictionary is 'to make or become larger or more extensive' and the meaning of the word 'expansion' is 'the action or an in~tance of expanding'. In ----------------------------------------- ~ 7 'eof the two words 'expansion' and 'extension' are rous and even if it be taken as expansion, as !,,!oedby the assessee, it is not different fro~ -~xtension iusiness and tonsequently the application of the -proviso to Section 36(1)(iii) of the Act is justified. In the entirety of facts and circumstancesand in view of the machinery not being put .. I-a:: :::J 0 l) J: :!)-J: .t(Z :::( >- ~ ~r.- to use, the interest expenditure on the utilisationof borrowed funds for the acquisitionof new assets, from the date of its acquisition till the date when machinery is put to use, is disallowable. Accordingly, we uphold the order 'of CITeA) and dismiss the ground No.3raised by the assessee." '- ' 13. , In view of the' above well reasoned observations of the Tribunal and the fact that the judgments relied upon by the learned :;(S :a ~ ""') z- .:> .l. counsel do not support the case of the assessee being based on individual factual situation involvedtherein, no substantial question of law arises in this appeal. Accordingly, finding no merit in the appeal the same is dismissed. April 7, 2011 *7