Law: Income Tax Act, 1961

Section: 36(1)(iii),43(1),32,32A,33,41

Section 36(1)(iii), read with section 43(1), of the Income-tax Act, 1961 - Interest on borrowed capital (Explanation 8 to section 43(1)) - Assessment year 2000-2001 - Whether Explanation 8 to section 43(1) only applies to provisions like sections 32, 32A, 33 and 41 which deal with concepts like depreciation; it has no relevance to section 36(1)(iii) - Held, yes - Whether assessee was entitled to claim revenue expenditure on payment of interest on borrowings made in relation to hotel projects, which were in nature of expansion of its business - Held, yes [Paras 13, 14] [In favour of assessee] FACTS â–  There were three projects being undertaken by the respondent assessee in Srinagar, Goa and Mumbai. The assessee borrowed loans for the said projects and showed them as works in progress. â–  The Assessing Officer noted that 75 per cent of the total interest paid on the term loan obtained from the Jammu and Kashmir Bank was capitalized. The balance was charged to the profit and loss account as revenue expenditure. According to the Assessing Officer, the assessee did not provide any justification how 25 per cent of the total interest paid could be claimed as revenue expenditure. This was accordingly added back. â–  On appeal, the Commissioner (Appeals) observed that during the assessment years in question the Srinagar hotel was partially operational and partially under repair and, therefore, the assessee's bifurcation of capital and revenue in the ratio of 75 per cent and 25 per cent did not appear to be unjustified. The addition was accordingly deleted. â–  On second appeal, the Tribunal was of the view that the hotel projects in Srinagar, Goa and Mumbai were in the nature of expansion of the business of the assessee and the interest paid on loans was allowable as revenue expenditure. HELD â–  In Dy. CIT v. Core Health Care Ltd. [2008] 298 ITR 194/167 Taxman 206 (SC) after analysing relevant statutory provisions, the Supreme Court came to the conclusion that Explanation 8 of section 43(1) only applied to provisions like 'Sections 32,32A,33 and 41 which deal with concepts like depreciation'. It was observed that Explanation 8 of section…

Deprecated: trim(): Passing null to parameter #1 ($string) of type string is deprecated in /home/digixyei/sldsystempk.com/view/master-layout/view_case.php on line 492