Law:

Section:

Section 10(2)(xv) of the Indian income-tax act, 1922 [corresponding to section 37(1) of the income-tax act, 1961]-Business expenditure-Whether sum paid to government as interest on monies borrowed from it, was allowable as a deduction against interest income earned from depositing monies borrowed-Held, on facts, no Facts In the accounting year relevant for the assessment year 1958-59, a heavy chemical plant set up by the assessee-company was under erection. Earlier, the assessee had obtained a Government loan for setting up the said plant and had deposited the monies in a bank. During the relevant assessment year, the assessee-company earned a sum of Rs. 1,75,471 as interest from bank and paid Rs. 9,54,588 to the Government and claimed the differences as allowable revenue expenditure. The ITO disallowed the claim on the ground that such expenses had nothing to do with the existing business of the assessee-company and it related to chemical unit which is still under erection. The Tribunal accepted this alternative plea and held that the difference between the interest paid and received would represent a loss under the head "Income from other sources" which would be admissible for set off against income arising from other heads in the relevant year. On reference : Held 1.The interest paid to the Government had to be capitalised and added to the cost of the said plant which was being set up. The same amount could not, therefore, be treated differently in the accounts of the assessee and converted into a loss by deducting, there from, the interest paid to the Government. 2.The assessee undoubtedly had succeeded in establishing that there was some nexus between the interest paid to the Government and the interest earned from the bank such nexus being that both the items of interest were either earned or paid on the said amount of has but the assessee had failed to establish that it was its purpose to utilise the amount received as loan for earning interest. It could not also be said that the assessee had established that the expenditure was incurred solely and wholly for the purpose of earning interest from the bank. 3.The deduction claimed was, therefore, not an…

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