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Section 36(1)(iii) of the Income-tax Act, 1961 - Interest on borrowed capital - Assessment year 1991-92 - Whether interest paid by assessee on money borrowed for expansion of its business would be allowable deduction irrespective of facts whether new assets were put in use - Held, yes FACTS The assessee claimed that the interest paid by it on the capital borrowed for expansion of its business was allowable under section 36(1)(iii). The Assessing Officer rejected the claim holding that as the assets were not put to use, the amount of interest could not be allowed as revenue expenditure. On appeal, the Commissioner (Appeals) affirmed the view taken by the Assessing Officer. On further appeal, the Tribunal considering the provisions of section 36(1)(iii) and following the view taken by the High Court in CIT v. Tarai Development Corporation Ltd. [1994] 205 ITR 421, allowed the assessee's claim and held that when there was expansion of business, whether the new assets were put in the use, was irrelevant. On appeal to the High Court : HELD There is no dispute that the proviso, which has been inserted to section 36(1)(iii) has been made effective from 1-4-2004. In view of the decision of the Supreme Court in the case of Veecumsees v. CIT [1996] 220 ITR 185, wherein it was held that the interest paid on capital amount borrowed for construction of business is allowable as revenue expenditure and further, in view of fact that the proviso was inserted under section 36(1)(iii) with effect from 1-4-2004, no infirmity was found in the order of the Tribunal. In the result, the view taken by the Tribunal was to be upheld. The assessee was entitled for deduction of the interest paid on the money borrowed for expansion of the business. Note : The case was decided in favour of the assessee. CASES REFERRED TO CIT v. Taran Development Corporation Ltd. [1994] 205 ITR 421 (All.) and Veecumsees v. CIT [1996] 220 ITR 185 (SC). K.K. Bissa for the Appellant. Vineet Kothari for the Respondent. JUDGMENT This appeal is directed against the order of the Tribunal dated April 28, 1999. The limited controversy before this court is whether the Tribunal was justified in allowing the interest…

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