Law: Income Tax Act, 1961

Section: 37

Income-tax---Business expenditure---Capital or revenue expenditure---Interest on borrowed capital ---Assessee borrowing money for purpose of setting up a printing facsimile unit---Interest paid allowable as revenue expenditure--­Indian Income Tax Act, 1961, S.37. The assessee established a printing facsimile unit at Hyderabad for printing its newspaper locally so that dispatch to that destination from Madras which would involve delay could be avoided. The assessee borrowed monies for the purpose of setting up that unit and though it had capitalised the interest paid on such borrowing in its accounts by way of an adjustment statement, it claimed the interest as revenue expenditure. That claim was disallowed by the Income-tax Officer, but was allowed by the Commissioner (Appeals) and such allowance was affirmed by the Tribunal. On a reference: Held, that the interest paid on monies borrowed for the purpose of erecting another plaint to carry on the assessee's business in a more efficient manner would constitute a deductible item of expenditure for the purpose of section 37 of the Income Tax Act, 1961. Indian Cements Ltd. v. CIT (1966) 60 ITR 52 (SC) and CIT (Addl.) v. Akkamamba Textiles Ltd. (1997) 227 ITR 464 (SC) fol. JUDGMENT R. JAYASIMHA BABU, J.---The question referred to us at the instance of the Revenue is as to whether the Tribunal was right in holding and had valid materials to hold that the interest on the amount borrowed for its Hyderabad facsimile project should be treated as a revenue expenditure and allowed as a deduction in computing the income of the assessee." The assessment year is 1977-78. The assessee is a Publisher of the Hindu newspaper. It has been carrying on business of several decades. It established a printing facsimile unit at Hyderabad for printing its paper locally so that despatch to that destination from Madras which involved delay could be avoided. The assessee borrowed monies for the purpose of setting up that unit and though it had capitalised the interest paid on such borrowing in its accounts by way of an adjustment statement, it claimed the interest as revenue expenditure. That claim was disallowed by the Income-tax Officer,…

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