2009 (4) TMI 548 - AT - Income Tax

Interest on borrowed capital, Deductions - Donation to certain funds, charitable institutions

Issues Involved:
1. Disallowance of interest payable to the Ministry of Urban Development and Poverty Alleviation.
2. Deduction of interest accrued on foreign currency loans.
3. Deduction of expenditure incurred on the issue of bonds, debentures, and other borrowings.
4. Depreciation on books.
5. Deduction of stamp duty expenditure.
6. Deduction under section 36(1)(viia) and section 36(1)(viii).
7. Deduction of expenditure incurred from the Urban Development Fund.
8. Deduction under section 80G.

Issue-wise Detailed Analysis:

1. Disallowance of Interest Payable to the Ministry of Urban Development and Poverty Alleviation:
The assessee claimed interest payable to the Ministry of Urban Development and Poverty Alleviation for the assessment years 2000-01 and 2001-02, which was disallowed by the Assessing Officer on the grounds that there was no obligation to pay such interest. The Tribunal found that the surplus funds belonged to the Government and a relationship of creditor and debtor existed between the Government and the assessee. The Tribunal concluded that the liability to pay interest had accrued based on correspondence between the assessee and the Ministry, and thus, allowed the deduction of interest for both years.

2. Deduction of Interest Accrued on Foreign Currency Loans:
The assessee claimed interest on foreign currency loans from the Asian Development Bank and Japan Bank of International Cooperation, which was disallowed by the Assessing Officer. The Tribunal, following its previous decisions, held that the interest liability had crystallized during the year under the mercantile system of accounting and was deductible under section 37(1) of the Act. Thus, the Tribunal allowed the deduction for both years.

3. Deduction of Expenditure on Issue of Bonds, Debentures, and Other Borrowings:
The assessee claimed expenditure on the issue of bonds, debentures, and other borrowings, which was disallowed by the Assessing Officer. The Tribunal, referring to its earlier decision, restored the matter to the Assessing Officer for re-examination, directing consideration of relevant judicial decisions. The Tribunal instructed the Assessing Officer to decide the issue afresh after hearing the assessee and considering the details.

4. Depreciation on Books:
The assessee claimed 100% depreciation on books, which was disallowed by the CIT (Appeals) and the Tribunal, as the assessee was neither a lending library nor a professional. The Tribunal upheld the decision to allow depreciation at 60%.

5. Deduction of Stamp Duty Expenditure:
The assessee claimed deduction for stamp duty expenditure, which was disallowed by the CIT (Appeals) based on section 43B, which allows deduction only on a payment basis. The Tribunal, relying on its previous decision, dismissed the ground, affirming that stamp duty is covered by section 43B and is deductible only when paid.

6. Deduction under Section 36(1)(viia) and Section 36(1)(viii):
The assessee sought deductions under sections 36(1)(viia) and 36(1)(viii) based on additions made in the assessment order. The Tribunal, following its previous decision, directed the Assessing Officer to recompute the deductions accordingly, allowing the grounds.

7. Deduction of Expenditure from Urban Development Fund:
The assessee claimed expenditure incurred from the Urban Development Fund, which was disallowed by the CIT (Appeals) due to lack of evidence of the requirement to make such a contribution. The Tribunal upheld the disallowance, noting that no expenditure was incurred and the assessee had not proven the obligation to contribute. The Tribunal suggested the assessee approach the Assessing Officer for rectification if needed.

8. Deduction under Section 80G:
The assessee claimed a deduction for a donation to the National Sports Development Fund, which was disallowed as the cheque was not encashed in the relevant year. The Tribunal restored the matter to the Assessing Officer to verify if the cheque was encashed in the subsequent year and allow the deduction accordingly.

Conclusion:
The Tribunal allowed the appeals partly, providing relief on several grounds while upholding the disallowances on others, directing the Assessing Officer to re-examine certain issues based on detailed guidelines.

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