TaxTMI 
TaxTMI 
TaxTMI 
2015 (8) TMI 16
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....s been published in the Rajasthan Patrika, which has a wide circulation in the State of Rajasthan and thus, service is complete. 3. We are satisfied with the service of summons on the private respondent and thus, we proceed to hear and decide the matter. 4. The appeal was admitted on the following substantial question of law:- "Whether, on the facts and in the circumstances of the case, the learned ITAT was legally justified in holding that the deduction on account of payment of interest on interest was allowable under section 36(i)(iii) and Section 37(1) of the Act of 1961?" 5. The facts of the case are that a return declaring income of Rs. 38,590/- was filed on 2.12.1996 alongwith the statement of total income, copies of trading and P....
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....rted in 254 ITR 606 in the case of Hon'ble Supreme Court. Although this interest was to be charged on the refund amount in relation to Sec.214 of the Act, in our opinion the Assessing Officer disallowed this claim of the assessee as according to him the assess was not entitled to deduction in respect of interest on interest, and that the assessee was not able to compute the element of interest on interest included in the total claim of Rs. 3,82,187. But the Assessing Officer has no where refuted the claim of the assessee that the assessee had utilized the borrowed fund only for the purpose of business. That being the case, when the interest was paid on the interest, the same becomes allowable u/s 36(1)(iii) and Sec.37(1) of the Act. The....
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....l and thereafter, interest has to be paid not only on the original principal but also on that part of the interest which had become a part of the principal. It cannot be said that the interest which became a part of the principal can be considered as the capital charge. What the assessee is entitled to deduct is the interest payable by him on the capital charge and not the additional interest which because of his failure to pay the interest on the due date had been considered as a part of the loan. In fact, the real capital charge is that which was originally due. The other portion is merely an interest on which the assessee has agreed to pay interest. Hence we are unable to accept the contention of the assessee that the interest paid on in....
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....8 and 9 as follows:- "8. We have also given our careful consideration to the submission of Mr. Mehta that the ITO has no power under Section 36(1)(iii) to examine the reasonableness of the rate of interest paid by the assessee on borrowings and to disallow any part of the amount which is paid by the assessee as interest on borrowings. We find it difficult to accept the above contention because, in our opinion, the ITO is undoubtedly entitled, while considering the claim for deduction under Section 36(1)(iii), to examine whether the amount paid as interest is really 'interest' and if he finds that it is not wholly interest but partly interest and partly payment for extra commercial consideration to allow only that part of the so-cal....
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....ount claimed as 'interest' is really an interest, wholly or in part, and if he finds that it is not wholly interest to ascertain that part of it which is interest and restrict the allowance of deduction under Section 36(1)(iii) only to that part which represents interest and to disallow the balance. In our opinion, under Section 36(1)(iii),the assessee is entitled to deduction only of that part of the amount paid by him for money borrowed which can genuinely be regarded as interest. Any and every payment in the garb of interest in excess of what can really be termed as 'interest' cannot be allowed as a deduction under that section." 11. In the present case, the assessee had failed to give break up of the interest attributab....
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....capital borrowed for the purposes of the business or profession, can be claimed as permissible deduction. Interest on interest is payable either on default contemplated under the agreement or by way of penalty or the amount shown in the account books to be paid for the settlement of the account. In either of the case, it is not deductible as the assessee is in default. 13. Further, we are of the view that interest on interest cannot be said to be a benefit extended in carrying on the business. It is an element of default, which attracts the interest by way of penalty and which is not permissible deduction. 14. In the present case, there is an additional feature that assessee failed to explain the amount which was claimed to be deducted un....