AI Drafter 
TaxTMI 
TaxTMI 
2016 (6) TMI 1040
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....of interest paid on nonconvertible portion of debentures, which according to the Assessing Officer gave an enduring benefit to the assessee?" 4. Whereas, Tax Appeal No.797 of 2007 was admitted on the following question of law: "Whether the Appellate Tribunal is right in law and on facts in upholding the order passed by CIT (A) in deleting the addition of Rs. 6,41,29,925/- out of interest paid on nonconvertible portion of debentures, which according to the Assessing Officer gave an enduring benefit to the assessee?" 5. Learned Counsel for the appellant has submitted that the learned Tribunal has committed serious error of law by not considering the issue of interest paid on nonconvertible debentures capitalized and debited in working capital in progress. 6. On the other hand, learned Counsel for the respondent has submitted that the issue involved in these two matters is squarely covered by a decision of this Hon'ble Court in case of Deputy CIT V. Core Health Care Ltd., [2001] 251 ITR 61 which has been confirmed by the Hon'ble Apex Court as reported in case of Deputy Commissioner of IncomeTax v. Core Health Care Ltd., [2008] 298 ITR 194 (SC) wherein the interest ....
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.... to be twentyfive thousand rupees. Explanation 8: For the removal of doubts, it is hereby declared that where any amount is paid or is payable as interest in connection with the acquisition of an asset, so much of such amount as is relatable to any period after such asset is first put to use shall not be included, and shall be deemed never to have been included, in the actual cost of such asset." 8. Interest on moneys borrowed for the purposes of business is a necessary item of expenditure in a business. For allowance of a claim for deduction of interest under the said section, all that is necessary is that # firstly, the money, i.e. capital, must have been borrowed by the assessee; secondly, it must have been borrowed for the purpose of business; and, thirdly, the assessee must have paid interest on the borrowed amount [See: Calico Dyeing & Printing Works v. Commr. Of Incometax, Bombay CityII #(1958) 34 ITR 265]. All that is germane is : whether the borrowing was, or was not, for the purpose of business. The expression "for the purpose of business" occurring in Section 36(1)(iii) indicates that once the test of "for the purpose of business" is satisfied in respect of t....
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....he 1961 Act. We find no merit in this contention. Section 43 groups together all provisions in the nature of definitions or interpretations relevant to the computation of income under the head "Profits and Gains of Business". Section 43(1) defines "actual cost". The definition of "actual cost" has been amplified by excluding such portion of the cost as is met directly or indirectly by any other person or authority. Explanation 8 has been inserted in Section 43(1) by Finance Act, 1986 (23 of 1986), with retrospective effect from 1.4.74. It is important to note that the word "actual cost" would mean the whole cost and not the estimate of cost. "Actual cost" means nothing more than the cost accurately ascertained. The determination of actual cost in Section 43(1) has relevancy in relation to Section 32(depreciation allowance), Section 32A(investment allowance), Section 33(development rebate allowance), and Section 41(balancing charge). "Actual cost" of an asset has no relevancy in relation to Section 36(1)(iii) of the 1961 Act. This reasoning flows from a bare reading of Section 43(1). Section 43 defines certain terms relevant to income from profits and gains of business and, therefor....
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.... not "for the purpose of business" inasmuch as no business had come into existence, it must follow that it was made for the purpose of acquiring an asset which could be put to use for doing business, and hence interest paid on such borrowing would go to add to the cost of the assets so acquired. 13. In our view the above observations have to be confined to the facts in the case of Challapalli Sugars Ltd. (supra). It was a case where the company had not yet started production when it borrowed the amount in question. The more appropriate decision applicable to the present case would be the judgment of this court in the case of India Cements Ltd. v. Commissioner of Incometax, Madras # (1966) 60 ITR 52 in which it has been observed that, for considering whether payment of interest on borrowing is revenue expenditure or not, the purpose for which the borrowing is made is irrelevant. In our view, Section 36(1)(iii) of the 1961 Act has to be read on its own terms. It is a Code by itself. Section 36(1)(iii) is attracted when the assessee borrows the capital for the purpose of his business. It does not matter whether the capital is borrowed in order to acquire a revenue asset or a capita....