Section 43B, capital work in progress interest, gifted property, and software depreciation principles clarified in tribunal analysis.

Employees' contribution to provident fund was treated as subject to the section 43B payment discipline, so the disallowance was upheld. Interest capitalised on capital work in progress was not disallowed under section 36(1)(iii) because the assessee's own funds were found sufficient, negativing any borrowing nexus. A gift of plots between companies was held capable of falling outside section 50C, since a valid gift by an authorised company is covered by the transfer exclusion in section 47(iii). Depreciation on software licence was allowed at the prescribed computer software rate, as software used with computers was treated as part of the computer system.

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Issues: (i) whether disallowance of employees' contribution to provident fund under section 43B was sustainable; (ii) whether interest capitalised on capital work in progress was disallowable under section 36(1)(iii); (iii) whether section 50C could be invoked in respect of a gift of plots by one company to another company; and (iv) whether depreciation on software licence was allowable at the applicable rate for computer software.

Issue (i): whether disallowance of employees' contribution to provident fund under section 43B was sustainable

Analysis: The liability for delayed payment of employees' contribution to provident fund was held to be governed by the settled position that such contribution is subject to the statutory payment discipline under section 43B, as affirmed by binding Supreme Court authority.

Conclusion: The disallowance under section 43B was upheld and this issue was decided against the assessee.

Issue (ii): whether interest capitalised on capital work in progress was disallowable under section 36(1)(iii)

Analysis: The assessee's reserves and surplus and share capital were found to be substantially higher than the amount added to capital work in progress. On those facts, the borrowing nexus assumed by the Assessing Officer was not accepted, and the availability of sufficient own funds negatived the proposed disallowance of interest.

Conclusion: The addition under section 36(1)(iii) was deleted and this issue was decided in favour of the assessee.

Issue (iii): whether section 50C could be invoked in respect of a gift of plots by one company to another company

Analysis: A company was treated as capable of making a valid gift where authorised by its constituent documents. A transfer by way of gift was held to fall within the statutory exclusion for transfers under section 47(iii), and therefore the deeming fiction in section 50C could not be applied to the gifted transfer.

Conclusion: The addition under section 50C was deleted and this issue was decided in favour of the assessee.

Issue (iv): whether depreciation on software licence was allowable at the applicable rate for computer software

Analysis: Software used with computers was treated as part of the computer system for depreciation purposes. Following the settled view on computer software, the assessee was entitled to depreciation at the prescribed rate and the mere characterisation of the asset as a licence to use did not justify denial of the claim.

Conclusion: The disallowance of depreciation was rejected and this issue was decided in favour of the assessee.

Final Conclusion: The assessee succeeded on the major disputed additions except the provident fund-related disallowance, and the Revenue's appeal did not survive.

Ratio Decidendi: Where the assessee has sufficient own funds, interest cannot be disallowed merely on an assumed borrowing nexus for capital work in progress; a company can make a valid gift if authorised, and a transfer by gift is outside section 50C by virtue of section 47(iii).

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