1986 (7) TMI 78

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....HETTY, ACTG. C. J.-These references are under section 256(1) of the Income-tax Act, 1961. The common question referred by the Tribunal for the opinion of this court is as follows: " Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the net interest income should be capitalised in each year ? " The assessee-company borrowed funds from fi....

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....t the interest earned should be allowed as a deduction in the computation of the total income of the assessee. He, however, held that such net interest should not be capitalised. The assessee preferred an appeal against the order of the Appellate Assistant Commissioner. It was contended before the Tribunal that the net interest should be capitalised. The Tribunal accepted that contention by fol....

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.... the contention, reliance was placed on the decision of the Supreme Court in Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167 and in particular, the following portion (at page 175): " It would appear from the above that the accepted accountancy rule for determining the cost of fixed assets is to include all expenditure necessary to bring such assets into existence and to put them in working con....

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.... cost of the fixed assets which have been created as a result of such borrowings. The Supreme Court has also observed that this principle would be applicable " in the absence of any statutory definition or other indication to the contrary ". Mr. Prasad, for the assessee, also justified the view taken by the Tribunal on the ground that such practice of capitalisation of net interest is in accord....