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[2008] 300 ITR 186 (PUNJ. & HAR) (FB) HIGH COURT OF PUNJAB AND HARYANA (Full Bench) Commissioner of Income-tax v. Vardhman Polytex Ltd. ADARSH KUMAR GOEL, M.M. KUMAR AND RAJESH BINDAL, JJ. IT APPEAL NO. 44 OF 2004 JANUARY 21, 2008 Section 43(1) of the Income-tax Act, 1961 - Actual cost In terms of Explanation 8 to section 43(1), interest on capital borrowed for acquisition of an asset for period before asset is first put to use is to be added towards its actual cost and for period thereafter it is not permitted to be added towards its actual cost; language of section 43(1), Explanation 8, makes out no distinction in acquisition of an asset when a new business is being set-up or when expansion is being carried out An amendment was carried out in section 43(1) by adding Explanation 8 thereto vide the Finance Act, 1986 with retrospective effect from 1-1-1974. The true import of Explanation 8 is that any amount paid or payable as interest in connection with an 'asset' which is relatable to the period after such asset is first put to use shall not be included in the actual cost of asset. A purposive interpretation is required to be given to section 43(1), Explanation 8, and it is clear that interest on the capital borrowed for acquisition of an asset for the period before the asset is first put to use is to be added towards its actual cost and for the period thereafter it is not permitted to be added towards its actual cost. The language of section 43(1),Explanation 8, does not in any manner make out a distinction in the acquisition of an asset when a new business is being set-up or when the expansion is being carried out. In fact, the addition of proviso to section 36(1)(iii) is nothing else but clarifying the same underlined object in the scheme of the Act providing for the manner in which such an interest on the capital borrowed is to be dealt with. Even a conjoint reading of section 36(1)(iii) as existing prior to the proviso inserted vide the Finance Act, 2003 thereto, and section 43(1), Explanation 8, clearly shows that any interest paid on the capital borrowed for the acquisition of an asset cannot be allowed as a revenue expenditure. The capital might…

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