1996 (7) TMI 89 - HC - Income Tax

Summary

Issues:
- Deduction of interest on term loan claimed by the assessee
- Allowability of the deduction as per Income-tax Act, 1961

Analysis:
The case involves an income-tax reference under section 256(1) of the Income-tax Act, 1961, regarding the deduction of interest on term loans claimed by the assessee, a Government undertaking. The assessee had initially claimed certain charges and expenses, including interest on term loans, from its constituents, which were shown in its books and returns. However, subsequent notifications disapproved these claims, leading to adjustments in the books and revised returns. The Assessing Officer disallowed the adjustments, stating that the liability accrued after the accounting period. The Commissioner of Income-tax (Appeals) allowed the deduction for interest on term loans, noting that the liability to pay interest had accrued in earlier years. The Income-tax Appellate Tribunal upheld this decision, leading the Department to appeal the matter.

The main question of law referred to the court was whether the deduction of interest on term loans was allowable. The court observed that the technical objection raised by the Assessing Officer regarding the timing of the claim did not hold, as the subsequent decision disapproving the interest on term loans was brought to the notice of the assessing authority before finalization of the assessment. The court agreed with the Commissioner of Income-tax (Appeals) and the Tribunal, stating that the view taken by them was justified. The court emphasized that since the Government orders disapproving the interest were received after the initial claim, there was no reason to ignore this subsequent decision. Therefore, the court ruled in favor of the assessee, holding that the deduction of interest on term loans was allowable.

In conclusion, the court found that the deduction of interest on term loans claimed by the assessee, a Government undertaking, was allowable under the circumstances of the case. The court upheld the decisions of the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal, ruling against the Revenue and in favor of the assessee.