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Issues: (i) Whether the BIFR circulars relied upon by the Tribunal governed the claim for deduction under section 43B of the Income-tax Act, 1961. (ii) Whether section 32 of the Sick Industrial Companies (Special Provisions) Act, 1985, and the sanctioned rehabilitation scheme, override section 43B of the Income-tax Act, 1961 and entitle the assessee to deduction of interest payable though not actually paid during the year.
Issue (i): Whether the BIFR circulars relied upon by the Tribunal governed the claim for deduction under section 43B of the Income-tax Act, 1961.
Analysis: The circulars were confined to the matters addressed in Circular No. 523, which dealt with section 41(1) of the Income-tax Act, 1961, and the related reliefs flowing from the scheme in that context. They did not extend to section 43B. The Tribunal's reliance on those circulars for allowing deduction under section 43B was therefore unsupported.
Conclusion: The circulars did not govern the assessee's claim under section 43B.
Issue (ii): Whether section 32 of the Sick Industrial Companies (Special Provisions) Act, 1985, and the sanctioned rehabilitation scheme, override section 43B of the Income-tax Act, 1961 and entitle the assessee to deduction of interest payable though not actually paid during the year.
Analysis: Section 32 of the Sick Industrial Companies (Special Provisions) Act, 1985 gives overriding effect to the provisions of that Act and schemes made thereunder over inconsistent laws. The sanctioned rehabilitation scheme specifically contemplated consideration of deduction of interest payable under section 43B. Read in the context of rehabilitation of a sick industrial company, the scheme was intended to confer that benefit, and the absence of an express directive in formulaic terms did not defeat the relief. The statutory scheme under SICA prevailed over the inconsistent restriction in section 43B.
Conclusion: Section 32 of the Sick Industrial Companies (Special Provisions) Act, 1985 and the sanctioned scheme operated in favour of the assessee, and deduction under section 43B was allowable.
Final Conclusion: The revenue's challenge failed because the rehabilitation scheme framed under SICA prevailed over the contrary treatment under the Income-tax Act, and the assessee was entitled to the deduction claimed.
Ratio Decidendi: A rehabilitation scheme sanctioned under SICA, by virtue of section 32, overrides inconsistent provisions of the Income-tax Act, and relief contemplated by the scheme cannot be denied merely because the underlying tax provision is otherwise restrictive.
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