Law:

Section:

Section 43(1) of the Income-tax Act, 1961 - Actual cost - Assessment year 1986-87 - Whether in view of Explanation 8 to section 43(1), any amount paid as interest in connection with acquisition of an asset shall not be included and shall never be deemed to have been included as part of actual cost of asset - Held, yes - Whether even if seller has issued a consolidated bill, if amount paid by assessee represents interest payment, then it is not open to assessee to capitalise same and claim it as part of actual cost of machinery - Held, yes CASES REFERRED TO Coimbatore Pioneer Mills Ltd. v. CIT [1999] 236 ITR 69 (Mad.) [Para 3] and CIT v. India Pistons Ltd. [2000] 242 ITR 672 (Mad.) [Para 3]. Mrs. Pushya Sitharaman for the Applicant. P.P.S. Janardhana Raja for the Respondent. . JUDGMENT N.V. Balasubramanian, J. - The Tribunal has stated a case at the instance of the Revenue and referred the following question of law in relation to the assessment year 1986-87 of the assessee : "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in allowing depreciation on the capitalised amount payable in instalments, in respect of capitalised asset under the deferred payment scheme ?" 2. The assessee is a company and it has borrowed some loans under the deferred payment scheme. The assessee capitalised the future interest payable on loans availed of by the assessee and claimed depreciation on the capitalised value. The Assessing Officer in his assessment proceedings, did not allow the capitalisation of future interest payable in view of Explanation 8 to section 43(1) of the Income-tax Act (hereinafter referred to as 'the Act'). The Commissioner of Income-tax (Appeals) on appeal allowed the appeal preferred by the assessee directing the Assessing Officer to allow depreciation on deferred payment guarantee interest capitalised. The Tribunal on appeal by the Revenue also confirmed the view of the Commissioner of Income-tax (Appeals). Hence, the present reference. 3. Heard Mrs. Pushya Sitharaman, learned Senior Standing Counsel for the Revenue, and Mr. Janardhana Raja, learned counsel for the assessee. Learned counsel for the assessee…

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