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2014 (11) TMI 940 - HC - Income TaxAllowability of deduction u/s 36(1)(iii) - Interest paid on borrowings of capital assets not put to use - Held that - Following the decision in DEPUTY COMMISSIONER OF INCOME-TAX Versus CORE HEALTH CARE LTD. 2008 (2) TMI 8 - SUPREME COURT OF INDIA - interest on borrowings utilized for purchase of machines are allowed to be deducted because these machines have been used in business. Option to claim partial depreciation or not - Whether assessee had an option in law to claim partial depreciation in respect of any block of assets Held that - The Tribunal was rightly of the view the that in Surat Textile Mills Ltd. v. Income tax Officer 2014 (5) TMI 481 - GUJARAT HIGH COURT it has been held that what the assessee had done was well within thin the legal framework - It was open for the assessee not to claim depreciation till the amendment was made by explanation 5 in section 32(1) of the Act which had the effect only from 1.4.2002 thus the order of the Tribunal is upheld Decided against revenue.
Issues:
1. Validity of interest paid on borrowings for capital assets. 2. Option to claim partial depreciation on block of assets. Analysis: Issue 1: Validity of interest paid on borrowings for capital assets The case involved the question of whether interest paid in respect of borrowings on capital assets not put to use in the concerned financial year could be permitted as an allowable deduction under section 36(1)(iii) of the Income Tax Act, 1961. The Apex Court, relying on its decision in Dy. Commissioner of Income Tax, Ahmedabad v. M/s. Core Health Care Ltd., ruled in favor of the assessee and against the Revenue on this issue. The judgment clarified the legal position regarding the deduction of interest on borrowings for capital assets, providing a favorable outcome for the assessee. Issue 2: Option to claim partial depreciation on block of assets The second question raised in the appeal was whether the respondent-assessee had the legal option to claim partial depreciation in respect of any block of assets. The Apex Court remitted this matter to the High Court for reconsideration due to the omission of Section 34(1) of the Act w.e.f. 01.04.1988. This decision highlighted the need for further examination by the High Court regarding the option to claim partial depreciation on block of assets, indicating that the legal aspects of this issue required additional scrutiny. The High Court, after considering the judgments in related cases such as CIT v. Mahendra Mills and Surat Textile Mills Ltd., concluded that the issue was already settled in favor of the assessee based on the legal framework and previous court decisions. The Court emphasized that the assessee's actions were within the legal boundaries, and the Assessing Officer's belief that income had escaped assessment lacked validity. The Court also noted that the Tribunal had rightly decided similar cases in line with the Supreme Court's rulings, indicating consistency in legal interpretation across different cases. In light of the settled legal positions and previous judgments, the High Court answered the question of law in favor of the assessee and against the Revenue. The Court dismissed the appeal, stating that no substantial question of law was involved in the case due to the clear legal precedents and interpretations provided by the Apex Court and previous decisions. The judgment was concise, as the issue had already been conclusively addressed by the legal framework and existing court rulings.
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