Law:

Section:

Section 36(1)(iii) of the Income-tax Act, 1961 - Interest on borrowed capital - Assessment years 1968-69 and 1960-70 - A company was amalgamated with assessee company and assessee took its business of restaurant - Assessee-company claimed deduction of interest paid to LIC on all amounts spent by LIC in respect of reconstruction, remodelling and enlargement of existing building which was to be given on lease to assessee on completion - Claim was disallowed by Tribunal on finding that expenses in question were incurred in connection with setting up of new hotel which had not commenced business at end of relevant previous years - Contention that business of restaurant carried on by amalgamated company of assessee was same business carried on by assessee, was not raised before Tribunal - Whether in order to be allowable as expenses it should be in respect of business which was carried on by assessee and profits of which are computed and assessed and should be incurred after business is set up - Held, yes - Whether since assessee had made no attempt to establish fact that expenses in question was part of new business or not, Tribunal was right in disallowing expenditure claimed in computation of business income - Held, yes FACTS The assessee-company was incorporated, with the object of carrying on the business of hotels, restaurants, cafes, holiday camps, etc. By an order of High Court, a company 'A' was amalgamated with the assessee-company and the assessee took its business of restaurant. The assessee entered into an agreement with the LIC, whereby the LIC agreed to reconstruct, remodel and enlarge the existing building which was to be given on lease to the assessee-company on completion on the terms and conditions mentioned in the agreement. One of the terms of the agreement was that the assessee-company had to pay to the LIC interest on all amounts spent or deemed to have been spent by the LIC, in respect of and on such construction at the end of every quarter until a new and remodelled building was completed in all respects and was to be given to the assessee-company. The building was completed early in 1971 and was given on lease to the assessee-company some…

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