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TMI Blog1983 (8) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... question at the instance of the Revenue has been referred by the Income-tax Appellate Tribunal under s. 256(1) of the I.T. Act, 1961 : " Whether, on the facts and in the circumstances of the case, the amount of interest of Rs. 96,170 on money borrowed for the purpose of purchase of new machinery and land is allowable is a revenue expenditure ?" The facts are correctly stated in the, statement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal borrowed for the purpose of purchasing the machinery and the land. The ITO disallowed the claim on the ground that the machinery purchased by the assessee was not used for production in the year of accounting. In reaching that conclusion, he relied upon the decision of the Supreme Court in Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167. Being aggrieved by the assessment order, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Printing Works' case [1958] 34 ITR 265. But the Tribunal did not agree with that contention. It observed that it was not the case of the Revenue that the assessee has started a new venture it was admittedly a running concern and since the borrowed capital was used for the purpose of purchasing machinery and land, the assessee would be entitled to the benefit under s. 36(1)(iii) of the Act. Be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of the Supreme Court for denying relief to the assessee in the instant case. The Supreme Court was considering the case of an assessee whose business had not commenced and the question raised therein was as to the nature of the interest paid on the borrowed capital for purchasing fixed assets and whether it should form part of the cost incurred. The Supreme Court held that such interest paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o agree with Mr. Joshi that, looking to the whole scheme of subsection (2), the capital which is borrowed must be used in the year of account. If the capital is used in the year of account and the use is for the purpose of the business, then it is immaterial whether the user of capital actually yields profit or not. What sub-clause (iii) emphasises is the user of the capital and not the user of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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