CASE NO.: Appeal (civil) 3428 of 1991 PETITIONER: COMMISSIONER OF INCOME TAX, KERALA RESPONDENT: ASSOCIATED FIBRE AND RUBBER INDUSTRIES (P) LTD. DATE OF JUDGMENT: 03/02/1999 BENCH: M. SRINIVASAN & U.C. BANERJEE JUDGMENT:
JUDGMENT
1999 (1) SCR 375
The following Order of the Court was delivered :
The respondent-assessee is a private limited company. The original
assessment for the years 1972-73 was made on 28.2.1973 determining the loss
as Rs. 78,823. A sum of Rs. 78,500 claimed as interest paid by the assessee
on amounts borrowed for purchase of machinery was allowed as a deduction.
Similarly, for the year 1973-74, in the original assessment deduction was
allowed for similar interest paid by the assessee. While making the
assessment for the assessment year 1974-75, the Income Tax Officer noticed
that the assessee had included a note in the schedule of fixed assets
appended to its balance sheet as on 31.3.1973 and that no depreciation had
been made for unused rubberised machinery valued at Rs. 4,80,000. Hence,
the Income Tax Officer held that such machinery had not been used for the
business of the assessee. Consequently, the I.T.O. took the view that the
assessee was not entitled to claim deduction for the interest paid by him
in all the three assessment years. The assessment was re-opened and fresh
assessment orders were passed by the I.T.O. rejecting the claim of
deduction made by the assessee. That order was confirmed on appeal by the
Appellate Assistant Commissioner and when the matter was taken to the
Tribunal, the latter took the view that the machinery being business asset,
the interest paid on the amount borrowed for the purchase of such machinery
would certainly be an allowable deduction. Consequent-ly, the Tribunal
upheld the claim of the assessee and permitted the deduc-tion being made.
2. The Revenue applied to the High Court under Section 256(2) for
directing the Tribunal to make a reference to it on the following question
:
“Whether on the facts and in the circumstances of the case the Tribunal is
justified in law in holding that the interest paid by the assessee on loans
taken from the bank for the purchase of machinery, which was never used in
the assessee’s business, is an allowable deduction in computing the total
income of the assessee for the assessment year 1972-73 and 1973-74.”
Similar application was filed for the year 1974-75. The High Court
dismissed the applications by two separate orders. Both the orders are
challenged in this appeal.
3. We do not find any merit in this appeal. We find that the reasoning of
the Tribunal is correct. Even though the machinery has not been actually
used in the business at the time when the assessment was made, the same had
been treated as business asset and it was purchased only for the purposes
of the business. In the circumstances, the interest paid on the amount
borrowed for purchases of such machinery is certainly a deductible amount.
Consequently, the view taken by the Tribunal is correct.
4. The appeal is dismissed. There will be no order as to costs. T.N.A.
Appeal dismissed.