ASSISTANT COMMISSIONER OF INCOME TAX, AHMEDABAD vs. ARVIND POLYCOT LTD.

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CIVIL APPEAL No. 1182/2008Supreme Court[2008] 2 S.C.R. 65008 February 2008Bench: 2 JudgesAuthor: S.H. KAPADIA, B. SUDERSHAN REDDY2 pages
AI SummaryDismissed

What did the Supreme Court hold?

The Supreme Court held that interest paid in respect of borrowings on capital assets not put to use in the concerned financial year is an allowable deduction under Section 36(1)(iii) of the Income-Tax Act, 1961. The Court's decision was squarely covered by its prior ruling in the case of Dy. Commr. of Income Tax, Ahmedabad v. Mis. Core Health Care Ltd. (Civil Appeal Nos. 3952-55 of 2002). The reasoning was that the deduction is permissible even if the asset is not yet utilized, as long as the borrowing was for the purpose of acquiring a capital asset. The appeal filed by the Department was dismissed. No issue was expressly left undecided.

What were the facts?

The appeal was filed by the Department (Assistant Commissioner of Income Tax, Ahmedabad) against the assessee, Arvind Polycot Ltd. The core issue concerned the allowability of interest paid on borrowings for capital assets that were not put to use in the relevant financial year. The High Court of Gujarat had previously ruled on this matter. The present appeal before the Supreme Court (Civil Appeal No. 1182 of 2008) was filed after leave was granted. The procedural history indicates that the Department challenged a decision that favored the assessee regarding this deduction.

What were the issues?

1. Whether interest paid in respect of borrowings on capital assets not put to use in the concerned financial year can be permitted as an allowable deduction under Section 36(1)(iii) of the Income-Tax Act, 1961? Assessee's contention: The judgment does not record specific contentions made by the assessee. However, the outcome indicates the assessee argued for the allowability of the deduction. Revenue's contention: The Department argued against the allowability of the deduction for interest paid on capital assets not yet put to use in the concerned financial year.

Which sections of the Income-tax Act were involved?

Section 36(1)(iii)

AI-generated summary — verify with the full judgment below

~/ (2008) 2 S.C.R. 650 ~ _...,, . A ASSISTANT COMMISSIONER OF INCOME TAX, AHMEDABAD 'II. A~VIND POLYCOT LTD. (Civil Appeal No. 1182 of 2008) B FEBRUARY 8, 2008 [S.H. KAPADIA AND B. SUDERSHAN REDDY, JJ.] J.. Income Tax Act, 1961 - s.36(i)(iii) - Interest paid in c respect of borrowings on capital assets not put to use in the concerned financial year - Held : Is allowable deduction. The question which arose of consideration in the present appeal is : Whether interest paid in respect of borrowings on capital assets not put to use in the D concerned financial year can be permitted as allowable deduction under Section 36(1) (iii) of the Income-Tax Act, A 1961? Dismissing the appeal, the Court ·~ E ·HELD: Interest paid in respect of borrowings on capital assets not put to use in the concerned financial year is allowable deduction under s.36(1 )(iii) of the -: Income-Tax Act, 1961. [Para 2] [651-8, C] Dy. Commnr. of Income Tax, Ahmedabad v. Mis. Core F Health Care Ltd. 2008(2) Scale 327 - relied on. ).. CIVILAPPELLATE JURI ICTION: Civil Appeal No. 1182 of 2008. From the Judgment and Order dated 19.10.2005 of the G High Court of judicature of Gujarat atAhmedabad in Tax Appeal No. 526 of 2003. ,,., P. Vishwanatha Shetty, T. Srinivasa Murthy, Gaurav Agrawal and B.V. Balaram Das for the Appellant. H 650

... ASSISTANT COMMISSIONER OF INCOME TAX, 651, AHMEDABAD v. ARVIND POLYCOT LTD. [KAPADIA, J.] S. Ganesh, Amar Dave, Rustom B. Hathikhanawala, E.C. A Agrawala. J.P. Shah, Manish Shah, Harish J. Jhaveri, Pardiwala, Jay Savla and Reena Bagga for the Respondent. The Judgment of the Court was delivered by KAPADIA, J.

1.

Leave granted. B

2.

In this civil appeal filed by the Department the question of law arises for determination which question is as follows: "Whether interest paid in respect of borrowings on capital assets not put to use in the concerned financial year can 1 c be permitted as allowable deduction under Section 36(1 )(iii) of the Income-tax Act, 1961 ?"

3.

Our answer to the above-mentioned question is squarely ' covered by our decision in favour of the assessee and against the Department in the case of Dy. Commr. of Income Tax, D Ahmedabad v. Mis. Core Health Care Ltd. in Civil Appeal , Nos.3952-55 of 2002. 4. Accordingly the said question is answered in favour of assessee and against the Department. Consequently the • Department's civil appeal is dismissed with no order as to costs. E D.G. Appeal dismissed. 1

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