Commissioner Of Income Tax, Ludhiana v. M/S Highway Cycle Industries Ltd., 698,Industrial Area-B, Ludhiana

In the High Court of Punjab and Haryana at Chandigarh ITA No. 402 of 2008 Date of Decision: 09.09.2008 Commissioner of Income tax, Ludhiana ...... Appellant Versus M/s Highway Cycle Industries Ltd., 698,Industrial Area-B, Ludhiana...... Respondent Coram:Hon'ble Mr. Justice Adarsh Kumar GoelHon'ble Mr. Justice Ajay Tewari 1. Whether Reporters of local papers may be allowed to see the judgment? 2. To be referred to the Reporters or not? 3. Whether the judgment should be reported in the Digest? Present:Mr.Rajesh Sethi, Advocate for the appellant.**** Ajay Tewari, J. This appeal has been filed by the Revenue under Section 260of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') against theorder dated 31.05.2007 passed by the Income Tax Appellate Tribunal,Chandigarh Bench 'B' Chandigarh (hereinafter referred to as 'the Tribunal')in ITA No. 713/Chandi/2006 for the assessment year 2000-2001, proposingfollowing substantial question of law:- 1. Whether on the facts and in law, the Hon'ble I.T.A.T. is rightin law in allowing a deduction of Rs. 3,45,805/- beinginterest pertaining to a new business that came into operationin the subsequent Asstt. Year, from the income of theexisting business, in the relevant Asstt. Year?”in law in allowing a deduction of Rs. 3,45,805/- beinginterest pertaining to a new business that came into operationin the subsequent Asstt. Year, from the income of theexisting business, in the relevant Asstt. Year?” The assessee expanded its business by foraying into themanufacture of auto components after demerger w.e.f. 1.4.99. Accordingto the Assessing Officer (A.O.) the commercial production started inDecember, 1999 and prior to the commencement of production the assessee ITA No. 402 of 2008 had shown interest paid relating to this expansion as revenue expenditure.According to the A.O. the interest paid on loan obtained for the expansionof business was required to be capitalised since new unit had not startedproduction and he accordingly capitalised a sum of Rs. 3,45,805/-. Theappeal filed by the assessee was dismissed by the CIT (Appeals). In secondappeal the learned Tribunal reversed the finding and that is how revenue isbefore us. We find the matter covered by the decision of the Hon'bleSupreme Court in Deputy Commissioner of Income Tax v. Core HealthCare Ltd., (2008) 298 ITR 194(SC) wherein the Hon'ble Supreme Courtheld as follows:- “The expression 'for the purpose of business' occurring in s. 36(1)(iii) indicates that once the test of 'for the purpose ofbusiness' is satisfied in respect of the capital borrowed, theassessee would be entitled to deduction under s. 36(1)(iii).This provision makes no distinction between money borrowedto acquire a capital asset or a revenue asset. All that the sectionrequires is that the assessee must borrow capital and thepurpose of the borrowing must be for business which is carriedon by the assessee in the year of account.”(1)(iii) indicates that once the test of 'for the purpose ofbusiness' is satisfied in respect of the capital borrowed, theassessee would be entitled to deduction under s. 36(1)(iii).This provision makes no distinction between money borrowedto acquire a capital asset or a revenue asset. All that the sectionrequires is that the assessee must borrow capital and thepurpose of the borrowing must be for business which is carriedon by the assessee in the year of account.” In view thereof we are of the opinion that the proposedquestion of law does not arise. The appeal is dismissed. (AJAY TEWARI)JUDGE (ADARSH KUMAR GOEL)JUDGE