COMMISSIONER OF INCOME TAX,LDH vs. M/S STEEL STRIPS, CHD

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ITA/209/2001HC Punjab & HaryanaPHHC01042046200107 January 2009Author: MR.JUSTICE J.S. KHEHAR,MR. JUSTICE NAWAB SINGH2 pages
AI SummaryRemanded

What did the High Court hold?

The High Court held that the deduction available to an assessee under Section 36(1)(iii) of the Income Tax Act, 1961, in respect of the interest component on capital borrowed, is to be determined in consonance with the judgment of the Apex Court in S.A. Builders Ltd. vs. Commissioner of Income-Tax (Appeals). Since this had not been done by the Assessing Officer or the Appellate Authorities, the Court agreed with both parties that the orders passed by them be set aside. The matter was remanded back to the Income Tax Appellate Tribunal, Chandigarh, to re-adjudicate the issue of entitlement to deduction under Section 36(1)(iii) based on the parameters laid down in S.A. Builders Ltd.'s case. The Tribunal was also directed to grant liberty to both parties to lead evidence if they so desired. The appeal was allowed to the limited extent of determination of the deduction claimed.

What were the facts?

This case involves an appeal by the Commissioner of Income Tax (Central), Ludhiana, against M/s Steel Strips Limited for the Assessment Year not specified. The core issue revolves around the deduction of interest on borrowed capital under Section 36(1)(iii) of the Income Tax Act, 1961. The Assessing Officer and the Appellate Authorities had not determined this deduction in consonance with the judgment of the Apex Court in S.A. Builders Ltd. vs. Commissioner of Income-Tax (Appeals). Consequently, both parties agreed that the orders passed by the lower authorities should be set aside. The High Court was asked to decide on the commercial expediency of the assessee extending interest-free loans.

What were the issues?

1. Whether the respondent-assessee is entitled to deduction under Section 36(1)(iii) of the Income Tax Act, 1961, on the interest component in respect of capital borrowed, based on the parameters laid down in S.A. Builders Ltd.'s case (supra)? Assessee's Contention: Not explicitly recorded, but implicitly agreed to the remand for re-adjudication based on S.A. Builders Ltd.'s case. Revenue's Contention: Not explicitly recorded, but implicitly agreed to the remand for re-adjudication based on S.A. Builders Ltd.'s case. The revenue's primary concern was the correct determination of the deduction under Section 36(1)(iii) in light of the Apex Court's ruling.

Which sections of the Income-tax Act were involved?

Section 36(1)(iii)

AI-generated summary — verify with the full judgment below

In the High Court of Punjab and Haryana at Chandigarh Date of Decision:07-01-2009 Commissioner of Income Tax (Central), Ludhiana ---Appellant versus M/s Steel Strips Limited ---Respondent Coram: HON'BLE MR. JUSTICE J.S.KHEHAR HON'BLE MR. JUSTICE NAWAB SINGH Present: Ms. Urvashi Dhugga, Advocate, for the appellant.

Mr.Akshay Bhan, Advocate, for the respondent. J.S.Khehar, J.(Oral)

During the course of hearing learned counsel for the rival parties are agreed that the deduction available to an assessee under Section 36 (1)(iii) of the Income Tax Act, 1961 in respect of the interest component on capital borrowed is to be determined in consonance with the judgment rendered by the Apex Court in S.A. Builders Ltd. vs.

Commissioner of Income-Tax (Appeals) and another (2007) 288 ITR 1 so as to determine the commercial expediency of the assessee, in extending interest free loan. Since the needful had not been done by the Assessing Officer, as also, the Appellate Authorities, learned counsel for the parties are agreed that the orders passed by the Assessing Officer as well as the Appellate Authorities be set aside.

Ordered accordingly.

Learned counsel for the parties are also agreed that the adjudication of the present controversy be remanded back to the Income -2- Tax Appellate Tribunal, Chandigarh, requiring it to re-adjudicate the issue whether the respondent - assessee is entitled to deduction under Section 36(1)(iii) of the Income Tax Act, 1961, on the interest component in respect of capital borrowed, based on the parameters laid down in S.A.Builders Ltd.'s case(supra), and while doing so, to grant liberty to the rival parties to lead evidence, if they so desire.

Accepting the submissions advanced by learned counsel for the parties, the matter is remanded to the Income Tax Appellate Tribunal, Chandigarh. The parties are directed to appear before the Income Tax Appellate Tribunal, Chandigarh on 2.2.2009.

In the aforesaid circumstances, the instant appeal is allowed.

The impugned orders are set aside to the limited extent of determination of deduction claimed by the respondent-assessee under Section 36(1)(iii) of the Income Tax Act, 1961. (J.S.KHEHAR) JUDGE (NAWAB SINGH) JUDGE January 07, 2009 PARAMJIT

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