2003 (7) TMI 21 - HC - Income Tax

Whether the Tribunal was justified in allowing the interest as revenue expenditure on the funds borrowed? - case of the respondent-assessee is that the interest paid on the capital borrowed for expansion of business is allowable under section 36(1)(iii). Revenue contend that as the assets were not put in use the amount of interest cannot be allowed as revenue expenditure - proviso inserted to clause (iii) of sub-section (1) of section 36 w.e.f. April 1 2004 - Assessee submits that the aforesaid proviso has no application in the present case as it has been made effective from April 1 2OO4. The year under consideration in the case in hand is the assessment year 1991-92 therefore the aforesaid amendment has no application - the view taken by the Tribunal is upheld

Summary

The High Court of Rajasthan upheld the Tribunal's decision allowing interest as revenue expenditure for funds borrowed for business expansion, despite assets not being put to use. The court cited section 36(1)(iii) of the Act and previous case law to support the decision. The proviso to section 36(1)(iii) was deemed inapplicable as it was effective from April 1, 2004, while the assessment year in question was 1991-92. The appeal was disposed of in favor of the respondent-assessee.