Interest on Loan for assets tax deductible

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CA Nishant Kumar

Service

46 Points Joined October 2007

Interest on Loan on assets Tax Deductible
SC ruled that the interest paid on borrowings for the purchase of capital assets but "not put to use" in the current financial year is eligible for income tax deduction. In Core Health Limited claimed deduction under section 36(1) and 36(III)of IT Act,1961 on the ground that the machinery borrowed by it by paying interest to the the tune of such amount was not put to use. IT department rejected the plea on argument that the assessee was not entitled to deductions in view of sec. 43(1), which specified the actual cost" for the purpose of assessment. Above view of revenue was rejected by both tribunal and High Court. SC held that money borrowed for the business is necessary expenditure in a business,for which assessee is entitled to deductions.

Replies (4)

CA AYYAPPA

Chartered Accountant

272 Points Joined June 2007

Thanks for the information

ANIL K SRIVASTAVA

C A

47 Points Joined February 2008

Dear Nishant The judgement of the Apex Court is to be read alongwith the Proviso inserted by Finance act 2003. After insertion of the Proviso interest upto the date of putting the asset shall have to be capitalised. One can however still argue that the Proviso shall be applicable only in case of extension of business and shall have no application if the new asset does not amount to extension of business. I have already posted a querrt on 13th Feb. Have a look at the querry. We can thereafter discuss the same.

Guest

439555 Points Joined August 2012

The provision inserted in Section 36(iii) is with reference to assets acquired for extension of business. However interest paid on assets acquired in connection with existing business will continue to be eligible for deduction & need not be capitalised with the cost of assets.