Valid charge by company registration and deferred-payment interest in asset cost shape tax allowance treatment.

Registration of a charge with the Registrar of Companies under the Companies Act can be sufficient to establish a valid charge over company immovable property for relief under section 40A(8), even if the deed is not separately registered under the Registration Act. Interest paid under a deferred payment scheme for purchase of plant and machinery may also be included in the actual cost of the asset for depreciation, investment allowance and additional depreciation where the governing precedent applies. The note records that one issue was resolved in favour of the assessee and the other in favour of the Revenue.

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Issues: (i) Whether the hypothecation trust deed created a valid charge or mortgage for the purpose of claiming the benefit of section 40A(8) of the Income-tax Act, 1961. (ii) Whether interest paid under deferred payment schemes for purchase of plant and machinery formed part of the actual cost of the assets for allowing depreciation, investment allowance and additional depreciation.

Issue (i): Whether the hypothecation trust deed created a valid charge or mortgage for the purpose of claiming the benefit of section 40A(8) of the Income-tax Act, 1961.

Analysis: The charge was created through a trust deed and registered with the Registrar of Companies as required under the Companies Act, 1956. The only objection was that the deed was not registered under the Registration Act. The decisive consideration was that registration of the charge under the Companies Act established a valid charge over the company's immovable properties, and that was sufficient to satisfy the statutory requirement for the relief claimed under section 40A(8)(b)(ix).

Conclusion: The issue was answered in favour of the assessee and against the Revenue.

Issue (ii): Whether interest paid under deferred payment schemes for purchase of plant and machinery formed part of the actual cost of the assets for allowing depreciation, investment allowance and additional depreciation.

Analysis: The question was treated as covered by an earlier decision of the same Court on the same point. Following that precedent, the interest paid under deferred payment schemes was held to be includible in the actual cost of the assets for the purpose of the claimed allowances.

Conclusion: The issue was answered in favour of the Revenue and against the assessee.

Final Conclusion: The reference was disposed of by answering one question in favour of the assessee and the other in favour of the Revenue, with no order as to costs.

Ratio Decidendi: Registration of a charge with the Registrar of Companies under the Companies Act is sufficient to establish a valid charge for the statutory relief under section 40A(8), and interest under a deferred payment scheme may form part of the actual cost of the asset where the governing precedent so requires.

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