9911796707
TMI Blog1987 (6) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... supply of 2500 kVA of power. The Electricity Board ('EB' for short) approved the assessee's request but directed the assessee to pay an amount of Rs. 8.24 lakhs under a system called 'voluntary' loan contribution. This payment of Rs. 8.24 lakhs would be repayable after a period of 5 years. It will bear simple interest at 6 per cent per annum. 3. The assessee, thereupon approached the State bank of India to sanction a loan which will enable them to pay Rs. 8.24 lakhs to EB. The Bank sanctioned the loan and the payment was made to EB by a draft dated 23-11-1981. 4. During the two accounting years, we are concerned with, the assessee was entitled to interest of Rs. 49,440 for the previous year relatable to the asst. year 1983-84 and Rs. 50 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that the interest receivable should be adjusted against the interest payable and the net amount should be capitalised cannot be accepted. There is also the decision of the karanataka High court on the same point in CIT v. Cap. Steel ltd. 1987 Tax LR 581. The karnataka High court had held that the interest received on deposits would be liable to be assessed. What is to be capitalised is the gross would interest payable on the loan and not the net interest after the adjustment of the interest receivable. In view of the two High court decisions directly opposite to the ruling of the special bench in Nagarjuna Steel Ltd. it will not be proper to follow the ratio of the Special Bench decision. 8. Sri Subrahmanayam for the company then submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s given to the EB is not an independent action but is related to obtain power for the industrial undertaking. The loan taken from the State Bank therefore a loan taken for the purpose of obtaining power for running of the business. It is all integrated and cannot be viewed independently or in isolation. Once it is realised that the loan given to the EB was the first step in obtaining power for the purpose of running the manufacturing unit, it will be realised that it cannot be viewed as an independent source of income coming under section 57. 10. In this connection, we would refer to the decision of the Bombay High court in the case of CIT v. United wire Ropes Ltd. [1980] 121 ITR 762. In that case the assessee had kept the share capital i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 1005 [Cal.] is in fact nearer to the facts of the assessee's case. The assessee had taken a loan on interest from the Government for erection of a chemical plant. This loan amount itself was kept in deposit till it was used for the stipulated purpose. Interest was earned thereon could be adjusted against the interest earned thereon could be adjusted against the interest payable to the Government. The Calcutta High court after reviewing the case law on this point held that the.interest payable to the Government was not an admissible deduction under section 57. 12. The decision in the case of Pakol Packaging Products [p.] Ltd., relied on by the assessee can be distinguished. In that case, the assessee had placed an order for the purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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