Disallowance of interest on capital as attributable to capital work-in-progress relying on the proviso to Section 36(1)(iii)

Last updated: 27 November 2021

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The High Court of Karnataka has ruled that interest on capital cannot be claimed as a deduction if it's attributable to capital work-in-progress. This decision was made by relying on the proviso to Section 36(1)(iii) of the Income Tax Act. Consequently, the Commissioner of Income Tax (Exemptions) was upheld in disallowing such interest claims.

Court :
Karnataka High Court

Brief :
Appeal filed under Revenue 260A of Income Tax Act 1961.

Citation :
ITA130/2021

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 27TH DAY OF OCTOBER, 2021 PRESENT THE HON'BLE MRS.JUSTICE S.SUJATHA AND THE HON'BLE MR. JUSTICE E.S.INDIRESH I.T.A.No.130/2021
BETWEEN :
1 . THE COMMISSIONER OF INCOME TAX EXEMPTIONS, 6TH FLOOR, UNITY BUILDING ANNEXE, MISSION ROAD, BENGALURU-560 027.
2 . THE ASST. COMMISSIONER OF INCOME-TAX EXEMPTIONS, CIRCLE-1, PRESENT ADDRESS DCIT, CIRCEL-1, EXEMPTION, 6TH FLOOR, UNITY BUILDING ANNEXE, MISSION ROAD, BENGALURU-560 027

APPELLANTS
(BY SRI E.I.SANMATHI, ADV. FOR SRI K.V.ARAVIND, ADV.)
AND :
M/s KARNATAKA INDUSTRIAL AREA DEVELOPMENT BOARD 143, R.P.BUILDING, 2N0 FLOOR, NRUPATHUNGA ROAD, BENGALURU-560 001, PAN: AAATK1350J
(BY SRI SHARATH S., ADV.)
RESPONDENT

Please find attached the enclosed file for the full judgement.

FAQ :

The main issue was whether interest on capital attributable to work-in-progress could be disallowed as a deduction.

The judgement specifically relied on the proviso to Section 36(1)(iii) of the Income Tax Act.

The taxpayer's claim for deduction of interest on capital for work-in-progress was disallowed.

The parties were the Commissioner of Income Tax (Exemptions) and the Assistant Commissioner of Income Tax (Exemptions) as appellants, and M/s Karnataka Industrial Area Development Board as the respondent.

Attached File : 1442821_4645_ita130_21_27_10_2021.pdf

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Judgement posted by

Poojitha Raam Vinay

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I simplify complex income tax, TDS, banking, and investment updates into practical insights for taxpayers, salaried professionals, pensioners, and senior citizens. I regularly write on ITR filing, tax compliance, savings schemes, and the latest financial rule changes in India.

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