Case Note & Summary
The case involves appeals filed by the Revenue (Pr. Commissioner of Income-Tax and Deputy Commissioner of Income-Tax) against the orders of the Income Tax Appellate Tribunal (ITAT), Bengaluru, which had allowed the assessee's claims for deduction of interest under Section 36(1)(iii) and depreciation under Section 32 of the Income Tax Act, 1961. The assessee, M/s. International Stones India Pvt. Ltd., had borrowed capital to acquire a capital asset and claimed interest deduction, and also claimed depreciation on assets acquired under a hire purchase agreement. The Assessing Officer disallowed these claims, but the Commissioner of Income Tax (Appeals) and the ITAT allowed them. The Revenue appealed to the High Court under Section 260A, arguing that the interest was not allowable as the asset was not put to use, and that depreciation was not allowable as the assessee was not the owner. The High Court, after hearing both sides, held that the interest on borrowed capital for acquiring a capital asset is allowable under Section 36(1)(iii) even if the asset is not immediately put to use, following settled law. Regarding depreciation, the court held that under a hire purchase agreement, the assessee is considered the owner for tax purposes and is entitled to depreciation under Section 32. The court found no substantial question of law and dismissed the appeals, upholding the ITAT's order.
Headnote
A) Income Tax - Interest Deduction - Section 36(1)(iii) - Allowability of Interest on Borrowed Capital - The issue was whether interest on borrowed capital used for acquiring a capital asset is allowable as deduction under Section 36(1)(iii) of the Income Tax Act, 1961. The court held that such interest is allowable as a deduction, following the principle that interest on borrowed capital for business purposes is deductible even if the asset is not put to use immediately. (Paras 1-10) B) Income Tax - Depreciation - Section 32 - Depreciation on Hire Purchase Assets - The issue was whether depreciation under Section 32 of the Income Tax Act, 1961 is allowable on assets acquired under a hire purchase agreement. The court held that the assessee, being the owner of the asset for tax purposes under a hire purchase agreement, is entitled to claim depreciation. (Paras 11-20) C) Income Tax - Substantial Question of Law - Section 260A - Scope of Appeal - The court considered whether the appeal under Section 260A of the Income Tax Act, 1961 raised any substantial question of law. The court held that the issues were covered by earlier decisions and did not give rise to any substantial question of law, and dismissed the appeal. (Paras 21-23)
Issue of Consideration
Whether the Income Tax Appellate Tribunal (ITAT) was correct in allowing deduction of interest under Section 36(1)(iii) on borrowed capital used for acquiring a capital asset, and in allowing depreciation under Section 32 on assets acquired under a hire purchase agreement.
Final Decision
Appeals dismissed. ITAT order upheld. No substantial question of law.
Law Points
- Interest on borrowed capital for acquiring capital asset is allowable under Section 36(1)(iii)
- Depreciation on assets acquired under hire purchase is allowable under Section 32
- Revenue's appeal dismissed for lack of substantial question of law
