Law: Income Tax Act, 1922

Section: 10(2)XVI

Income-tax Act (XI of 1922)----S. 10 (2) XVI--Interest paid by assessee on the amount by which capited assets were purchased was an admissible deduction being expenditure incurred wholly for the purpose of business. Commissioner of Income Tax, West Zone, Karachi v. M/s. Khairpur Textile Mills Limited and others civil Appeal Nos. 77-K to 80 K of 1979 fol. JUDGMENT SALEEM AKHTAR, J.--The respondent is an Association of persons comprising of two persons who were Promotors of Pakistan Progressive Cement Industries Limited which was incorporated on 18-4-1964. During the assessment year 1964-65 the respondents claimed deduction under section 10 (2) (iii) of the income Tax Act in respect of interest payable to M/s. Dalmia Cement Limited on the purchase price. This claim was disallowed by the Income Tax Officer and in appeal the Appellate. Assistant Commissioner maintained the same order. The respondent then filed appeal before the Tribunal, which was allowed and it was held that the interest paid by the respondent is an allowable expense under section 10 (2) (xvii) of the Income Tax Act. The Department has filed this application under section 66 (1) raising the following question: "Whether on the facts and in the circumstances of the case the sum of Rs.25,80,785 being interest payable to Dalmia Cement Ltd. on purchase price could be deemed to have been incurred wholly and exclusively for the purpose of business under section 10 (2) , (xvi) and could be allowed as such." The facts which emerge from the order of the Tribunal are that by an agreement dated 24-7-1962 M/s: Dalmia Cement Limited agreed to sell its two cement factories at Shantintinagar and Dandot to Eruch Maneckji for Rs.23,366,678. A supplement agreement dated 20-11-''1962 was also executed between the parties according to which till the sale-deed was finally completed the profits would belong to Maneckji or his nominee. The factories were to be transferred to Maneckji or his nominee Eruch Maneckji and Naoroz Maneckji floated Pakistan Progressive Cement Industries Limited and sale-deed was executed in its, favour. According to the agreements the sale price was to be paid in instalments by making deliveries…

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