1986 (1) TMI 62 - HC - Income Tax

High Court ruling: Interest on machinery purchase incl. in depreciation. Registration expenses for loans allowed as business expenditure.

The High Court of Punjab and Haryana ruled in favor of the assessee on both issues. Interest paid on the purchase of machinery was considered part of the ... Business Expenditure, Depreciation, Developement Rebate Issues Involved:The judgment addresses two main issues: 1. Whether interest paid on purchase of machinery should be considered as part of the cost of machinery for depreciation and development rebate entitlement.2. Whether registration expenses incurred for obtaining a loan for a new venture can be claimed as business expenditure.Issue 1: Interest on Purchase of MachineryThe assessee, engaged in spinning and weaving business, purchased machinery on deferred terms, paying interest of Rs. 2,55,321. The dispute was whether this interest should be included in the machinery's cost for depreciation and development rebate. The Tribunal ruled in favor of the assessee, citing precedents like Challapalli Sugars Ltd. v. CIT and others, supporting the inclusion of interest in machinery cost. The court upheld the Tribunal's decision, allowing depreciation and rebate on the interest amount.Issue 2: Registration Expenses for LoanThe assessee incurred registration expenses of Rs. 19,607 for obtaining a loan to set up a new vanaspati ghee manufacturing unit. The Income-tax Officer initially disallowed this claim, stating the unit was not operational during the relevant period. However, the Tribunal, following precedents like Prem Spinning and Weaving Mills Co. Ltd. v. CIT and others, allowed the expenses as business expenditure. The court agreed with the Tribunal, emphasizing that the loan was not an enduring asset and the expenses were incurred for securing the use of money, thus qualifying as business expenditure. The court ruled in favor of the assessee, allowing the deduction of registration expenses.The judgment by the High Court of Punjab and Haryana addressed the issues of interest on machinery purchase and registration expenses for obtaining a loan, providing clarity on the treatment of these expenses for taxation purposes.