COMMISSIONER OF INCOME TAX, KERALA v. ASSOCIATED FIBRE AND RUBBER INDUSTRIES (P) LTD

[M. SRINIVASAN AND U.C. BANERJEE, JJ.] Income Tax Act, 1961 : Sections 37 and 48. Income T~Assessee-Private Limited Company-Assessment years 1972-73, 1973-74, 1974-75-Loans taken from the Bank for purchase of machine1y-Machinery not utilised in business-Interest paid on loan-Claim for deduction for interest-Held, Even though the machinery has not been actually used in the business at the time when the assessment was made, the same had been treated as business asset and it was purchased° only for the purposes of the business-In the circumstances, the interest paid on the amount borrowed for purchase of such machinery is certainly a deductible amount. CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3428 of

#1991. A B c D From the Judgment and Order dated 7.1.81 and 18.12.80 of the E Kerala High Court in O.P. Nos. 3222/79A and 2808 of 1978A. S. Rajappa for B.K. Prnsad for the Appellant. Anil Kumar Jha, (NP) for the Respondent. The following Order of the Court was delivered : F The respondent-assessee is a private limited company. The original assessment for the years 1972-73 was made on 28.2.1973 determining the loss as Rs. 78,823. A sum of Rs. 78,500 claimed as interest paid by the assessee on amounts borrowed for purchase of machinery was allowed as G a deduction. Similarly, for the year 1973-74, in the original assessment deduction was allowed for similar interest paid by the assessee. While making the assessment for the assessment year 1974-75, the Income Tax Officer noticed that the assessee had included a note in the schedule of fixed assets appended to its balance sheet as on 31.3. 1973 and that no H 375 376 SUPREME COURT REPORTS [1999] 1 S.C.R. A depreciation had been made for unused rubberised machinery valued at Rs. 4,80,000. Hence, the Income Tax Officer held that such machinery had not been used for the business of the assessee. Consequently, the I.T.O. took the view that the assessee was not entitled to claim deduction for the interest paid by him in all the three assessment years. The assessment was B re-opened and fresh assessment orders were passed by the l.T.O. rejecting the claim of deduction made by the assessee. That order was confirmed on appeal by the Appellate Assistant Commissioner and when the matter was taken to the Tribunal, the latter took the view that the machinery being business asset, the interest paid on the amount borrowed for the purchase of such machinery would certainly be an allowable deduction. Consequent- ly, the Tribunal upheld the claim of the assessee and permitted the deduc tion being made. C

#2. The Revenue applied to the High Court under Section 256(2) for directing the Tribunal to make a reference to it on the following question: "Whether on the facts and in the circumstances of the case the Tribunal is justified in law in holding that the interest paid by the · assessee on loans taken from the bank for the purchase of machinery, which was never used in the assessee's business, is an allowable deduction in computing the total income of the assessee for the assessment year 1972-73 and 1973-74." Similar application was filed for the year 1974-75. The High Court dismissed the applications by two separate orders. Both the orders are challenged in this appeal. D E F

#3. We do not find any merit in this appeal. We find that the reasoning of the Tribunal is correct. Even though the machinery has not been actually used in the business at the time when the assessment was made, the same had been treated as business asset and it was purchased only for the G purposes of the business. In the circumstances, the interest paid on the amount borrowed for purchases of such machinery is certainly a deductible amount: Consequently, the view taken by the Tribunal is correct.

#4. The appeal is dismissed. There will be no order as to costs. T.N.A. Appeal dismissed. c