Law:

Section:

Interest paid or payable in connection with acquisition of asset for period after asset is first put to use cannot be included in actual cost of such asset either for purpose of depreciation or investment allowances I. Section 43(1), read with sections 32 and 32A, of the Income-tax Act, 1961 - Actual cost - Assessment years 1982-83 and 1983-84 - Assessee purchased machinery under a scheme of payment by instalments financed by one 'I' - It claimed depreciation and investment allowance on cost of machinery plus interest payable by it in instalments financed by 'I' - Whether interest in question required to be paid by assessee was for period after machinery was first put to use - Held, yes - Whether, therefore, Explanation 8 to section 43(1) would be clearly attracted to instant case - Held, yes - Whether, therefore, interest paid or payable in connection with acquisition of asset for period after asset was first put to use could not be included in actual cost of such machinery either for purpose of depreciation or investment allowance - Held, yes FACTS I. The assessee had purchased machinery under a scheme of payment by instalments financed by one 'I'. Under this scheme, the assessee drew usance bills spread over five years guaranteed by the assessee's bank and gave them to the seller for getting them discounted with 'I' and obtaining 90 per cent payment for the order while 10 per cent was required to be paid in advance by the assessee. 'I' would then present the bills to the assessee's bank on the due date of the instalments. The assessee was expected to provide sufficient finance to the bank, failing which it was the bank's responsibility to honour those bills. The bills duly discharged would then be handed over to the assessee by the bank after the assessee had paid the bank. No rebate or concession was allowed to the assessee even if the payment for the bills was made in advance of the date of maturity. That was because the bills were already discounted with 'I' where no corresponding rebate was possible. Even the rate of interest was contractual for the entire period irrespective of the bank rate. The Assessing Officer did not allow the assessee's claim to…

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