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2008] 306 ITR 33 [2009] 177 TAXMAN 68 (GUJ.) HIGH COURT OF GUJARAT Commissioner of Income-tax v. Arvindbhai Narottambhai (HUF)* D.A. MEHTA AND Z.K. SAIYED, JJ. INCOME-TAX REFERENCE NO. 99 OF 1997 APRIL 9, 2008 Section 36(1)(iii) of the Income-tax Act, 1961 - Interest on borrowed capital - Assessment year 1986-87 - Assessee claimed deduction of interest on borrowed capital at rate of 7.5 per cent - Assessing Officer rejected assessee's claim - However, assessee succeeded before Commissioner (Appeals) - On revenue's appeal, Tribunal relying upon its own order in case of Shrenik Kasturbhai HUF, held that deduction would be allowed at rate of 4 per cent - On instant reference, assessee pointed out that though revenue had preferred reference against order of Tribunal in case of Shrenik Kasturbhai HUF, finding relating to allowability of deduction at rate of 4 per cent had not been challenged - Whether, in view of assessee's contention, it became apparent that finding of Tribunal in case of Shrenik Kasturbhai HUF that interest payment worked out by applying rate of 4 per cent was reasonable - Held, yes - Whether, therefore, in instant case, Tribunal was right in allowing interest on borrowed fund at rate of 4 per cent - Held, yes B.B. Naik for the Applicant. Manish J. Shah for the Respondent. ORAL JUDGMENT D.A. Mehta, J. - The Income-tax Appellate Tribunal, Ahmedabad Bench A, has referred the following question under section 256(1) of the Income-tax Act, 1961 ('the Act'), at the instance of the Commissioner of Income-tax : "Whether on the facts and in the circumstances of the case, the Tribunal was right in allowing interest on borrowed funds at the rate of 4 per cent and not at the rate of 7.5 per cent for acquisition of preference shares?" 2. The assessment year is 1986-87. The relevant accounting period is Samvat Year 2041. The assessee claimed deduction of interest paid on borrowing of Rs. 17 lakhs and the rate of interest was 7.5 per cent. The Assessing Officer disallowed the same. The assessee succeeded before the Commissioner (Appeals). In revenue's appeal the Tribunal vide order dated 31-1-1997 held that deduction of the amount worked out by applying 4 per…

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