C.L.T., BARODA vs. ISHWAR BHUVAN HOTELS LTD., BARODA

PDF · subscribers
CIVIL APPEAL No. 2594/2006Supreme Court[2008] 2 S.C.R. 65208 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 on borrowings for capital assets not put to use in the concerned financial year is allowable as a deduction under Section 36(1)(iii) of the Income-tax Act, 1961. The Court's decision was squarely covered by its earlier judgment in the case of Dy. Commnr. of Income Tax, Ahmedabad v. Mis. Core Health Care Ltd. (Civil Appeal Nos. 3952-55 of 2002). The ratio decidendi is that the expenditure on interest is incurred for the purpose of business, even if the asset acquired with borrowed funds is not yet utilized. The Court answered the question of law in favour of the assessee and against the Department. Consequently, the Department's civil appeal was dismissed.

What were the facts?

The appeal was filed by the Department (Commissioner of Income Tax, Baroda) against the order of the High Court of Gujarat. The High Court had ruled in favour of the assessee, Ishwar Bhuvan Hotels Ltd., Baroda. The core issue revolved around the deductibility of interest paid on borrowings for capital assets that were not yet put to use in the relevant financial year. The Department challenged the High Court's decision, leading to this civil appeal before the Supreme Court.

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? (Question of law) Assessee's contention: Not recorded in the judgment. Revenue's contention: Not recorded in the judgment. The judgment directly refers to a prior decision of the Supreme Court that covered the issue.

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. 652 A C.l.T., BARODA .J .+, II. ISHWAR BHUVAN HOTELS LTD., BARODA (Civil Appeal No. 2594 of 2006) B FEBRUARY 8, 2008 [S.H. KAPADIA AND 8. SUDERSHAN REDDY, JJ.] -+ Income Tax Act, 1961 ..... s. 36 (1) (iii)- Borrowing on capital • assets not put to use in the concerned financial year- Interest c paid on - Whether can be permitted as allowable deduction under the provision - Held: Yes. Health Care Ltd. in Civil Appeal Nos. 3952-55 of 2002 decided by Supreme Court on 8.2.2008- relied on. D CIVILAPPELLATE JURI ICTION : Civil Appeal No.2594 of 2006. A From the final Judgment and Order dated 19.10.2005 of . ;. the High Court of Gujarat atAhmedabad in Tax Appeal No. 529/ E 2003. P. Vishwanatha Shetty, T. Srinivasa Murthy, Gaurav Agrawal and B.V. Balaram Das for the Appellant. ' ' E.C. Agrawala for the Respondent. F The Judgment of the Court was delivered by KAPADIA, J.

1.

In this civil appeal filed by the Department the question of law arises for determination which question is · as follows: G "Whether interest paid in respect of borrowings on capital assets not put to use in the concerned financial year can )- be permitted as allowable deduction under Section 36(1 )(iii) of the Income-tax Act, 1961 ?" H 652

C.l.T., BARODA v. ISHWAR BHUVAN HOTELS LTD., 653 BARODA [KAPADIA, J.]

2.

Our answer to the above-mentioned question is squarely A covered by our decision in favour of the assessee and against the Department in the case of Dy. Commr. of Income Tax, Ahmedabad v. Mis. Core Health Care Ltd. in Civil Appeal Nos.3952-55 of 2002. ·

3.

Accordingly the above question is answered in favour B of assessee and against the Department. Consequently the Department's civil appeal is dismissed with no order as to cost. K.K.T. Appeal dismissed. c

More judgments on Section 36(1)(iii)

All 3,665 judgments and leading authorities on Section 36(1)(iii) →

Recent GST High Court judgments

Search GST case law →