Court allows tax appeal for deduction of interest on borrowed capital used for business.

The court allowed the tax appeal in favor of the appellant, holding that the interest paid on borrowed capital used for business purposes should be deductible under section 36(1)(iii) of the Income-tax Act, 1961. The court disagreed with the Tribunal's decision to disallow the interest paid in respect of the capital borrowed for installing a second caprolactum plant, citing the Supreme Court's decision in Deputy CIT v. Core Health Care Ltd. The appeal was decided against the Revenue, and the appellant's claim for deduction of interest expenses was upheld.

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Issues:
Disallowance of interest paid in respect of capital borrowed for business purposes.

Analysis:
The appellant, a joint sector company, had borrowed a significant amount for installing a second caprolactum plant. The Tribunal had disallowed the interest paid on such borrowing for the assessment year 1992-93, considering previous decisions as per incuriam. However, the appellant contended that the Supreme Court's decision in Deputy CIT v. Core Health Care Ltd. is applicable to the present case. The Supreme Court held that section 36(1)(iii) of the Income-tax Act, 1961, does not differentiate between capital borrowed for revenue or capital purposes; it emphasizes the use of capital for business. The actual cost of an asset is irrelevant under this section. The appellant argued that as long as the borrowed capital is used for business purposes, the interest paid is deductible under section 36(1)(iii).

The appellant's counsel relied on the Supreme Court's decision to support the claim that the interest paid on borrowed capital used for business purposes should be allowed as a deduction. The Revenue's counsel did not dispute the applicability of the Supreme Court's decision to the present case. The court, after considering the facts and the Supreme Court's decision, concluded that the Tribunal was incorrect in disallowing the interest paid in respect of the capital borrowed for the second caprolactum plant under installation. Therefore, the court allowed the tax appeal in favor of the appellant, answering the formulated question negatively, against the Revenue. The appeal was accordingly disposed of.

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