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TMI Blog2016 (6) TMI 1040X X X X Extracts X X X X X X X X Extracts X X X X ..... on judgment. 2. The appellantrevenue has challenged the order dated 03/11/2016 made by the ITAT in ITA No.1044/Ahd/2001 for the assessment year 1997-98 by filing Tax Appeal No.787 of 2007; whereas the Tax Appeal No.797 of 2007 has been filed challenging the order dated 03/11/2016 made by the ITAT in ITA No.886/Ahd/2001 for the assessment year 1996-97. 3. Tax Appeal No.787 of 2007 was admitted on the following question of law: (C ) Whether the Appellate Tribunal is right in law and on facts in upholding the order passed by the CIT(A) in deleting the addition of ₹ 2,97,65,150/- out of interest paid on nonconvertible portion of debentures, which according to the Assessing Officer gave an enduring benefit to the assessee? 4. Whereas, Tax Appeal No.797 of 2007 was admitted on the following question of law: Whether the Appellate Tribunal is right in law and on facts in upholding the order passed by CIT (A) in deleting the addition of ₹ 6,41,29,925/- out of interest paid on nonconvertible portion of debentures, which according to the Assessing Officer gave an enduring benefit to the assessee? 5. Learned Counsel for the appellant has submitted that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) actual cost means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority: Provided that where the actual cost of an asset, being a motor car which is acquired by the assessee after the 31st day of March, 1967, but before the 1st day of March, 1975, and is used otherwise than in a business of running it on hire for tourists, exceeds twentyfive thousand rupees, the excess of the actual cost over such amount shall be ignored, and the actual cost thereof shall be taken to be twentyfive thousand rupees. Explanation 8: For the removal of doubts, it is hereby declared that where any amount is paid or is payable as interest in connection with the acquisition of an asset, so much of such amount as is relatable to any period after such asset is first put to use shall not be included, and shall be deemed never to have been included, in the actual cost of such asset. 8. Interest on moneys borrowed for the purposes of business is a necessary item of expenditure in a business. For allowance of a claim for deduction of interest under the said section, al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hinery is certainly a deductible amount. 10. As stated above, the Department contended before us that the judgments of this Court, prior to insertion of Explanation 8 in Section 43(1) of the 1961 Act, has no application to the present case. According to the Department, Section 36(1)(iii) of the 1961 Act being general in nature has to give way to special provisions contained in Explanation 8 to Section 43(1) of the 1961 Act. According to the Department, in none of the earlier judgments this Court has considered the true scope of Explanation 8 to Section 43(1) vis` vis Section 36(1)(iii) of the 1961 Act. We find no merit in this contention. Section 43 groups together all provisions in the nature of definitions or interpretations relevant to the computation of income under the head Profits and Gains of Business . Section 43(1) defines actual cost . The definition of actual cost has been amplified by excluding such portion of the cost as is met directly or indirectly by any other person or authority. Explanation 8 has been inserted in Section 43(1) by Finance Act, 1986 (23 of 1986), with retrospective effect from 1.4.74. It is important to note that the word actual cost wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Section 36(1)(iii) has to be read as prospectively and w.e.f. 1.4.04. In this case, we are concerned with the law as it existed prior to 1.4.2004. As stated above, we are not concerned with the interpretation or applicability of the said proviso to Section 36(1)(iii) w.e.f. 1.4.04 in the present case. 12. In the case of Challapalli Sugars Ltd. (supra) this Court observed that interest paid on the borrowing utilized to bring into existence a fixed asset which has not gone into production, goes to add to the cost of installation of that asset. It was further observed that if the said borrowing was not for the purpose of business inasmuch as no business had come into existence, it must follow that it was made for the purpose of acquiring an asset which could be put to use for doing business, and hence interest paid on such borrowing would go to add to the cost of the assets so acquired. 13. In our view the above observations have to be confined to the facts in the case of Challapalli Sugars Ltd. (supra). It was a case where the company had not yet started production when it borrowed the amount in question. The more appropriate decision applicable to the present case wo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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