Law:

Section:

Section 43(1) of the I ncome-tax Act, 1961 - Actual cost - Assessee-company borrowed funds for installation of plant and machinery - After spending certain amounts, assessee deposited surplus money available with it in term deposits and thereby earned some interest income - ITO held that gross interest paid on said borrowals by assessee should be capitalised - However, tribunal took a contrary view to ITO holding that interest income from term deposits should be set off against gross interest and only net interest should be capitalised - Whether tribunal was justified in its view - Held, no Facts The assessee-company borrowed funds for the purpose of installation of plant and machinery and also for construction of building. After spending certain amounts, the assessee deposited the surplus money available with it in term 'deposits' and earned some interest income out of those deposits. The assessee contended that the interest income should not be brought to tax and it should be given set off against the interest payable on that part of the borrowings. The ITO did not accept the assessee's contention and held that the gross interest should be capitalised along with the other expenses. On second appeal, the Tribunal accepted the assessee's contention that only the net interest should be capitalised. On reference: Held In view of Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167 (SC), it is clear that the interest paid on borrowals must be capitalised and added to the cost of the fixed assets which have been created as a result of such borrowings. Further, under the Act, interest earned on the interest income accrued to the assessee, whether out of borrowed money or out of one's own capital is liable to tax. Therefore, in the persent case, the assessee's contention that the interest income should not be brought to tax but should be set off against the interest payable on the borrowings could not be accepted. Accordingly, the gross interest should have been capitalised. Cases referred to Bihar Alloy Steel Ltd. v. ITO [1978] 1 Taxman 339 (Pat.) and Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167 (SC). K. Srinivasan and H. Raghavendra Rao for the Applicant K.R.…

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