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of <h1>Deductibility of Interest on Construction: High Court Decision</h1> The High Court of Karnataka ruled that interest paid on borrowed money for constructing a new factory building is deductible as revenue expenditure, even ... Accounting Year, Business Expenditure, Carrying On Business, Factory Building Issues involved: Interpretation of the Income Tax Act, 1961 regarding deductibility of interest paid on borrowed money for construction of new factory building as revenue expenditure.Summary:The High Court of Karnataka addressed the question of whether the interest paid on money borrowed for constructing a new factory building could be considered as a revenue deduction for the assessee's business. The Income Tax Officer (ITO) and the Appellate Assistant Commissioner (AAC) initially disallowed the deduction on the grounds that the building was not yet in use. However, the Tribunal overturned their decision and allowed the deduction claimed by the assessee. The court agreed with the Tribunal's decision, stating that the interest paid on borrowings for constructing buildings is deductible as revenue expenditure, even if the buildings were not yet utilized for business purposes during the accounting year. This interpretation was consistent with a previous ruling by a Division Bench of the court in Ravi Machine Tools (P.) Ltd. v. CIT [1978] 114 ITR 459(Kar). Therefore, the court answered the question in the affirmative, in favor of the assessee and against the department.
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