“Section 36(1)(ii)”
The decision most relied on for Section 36(1)(ii) is CIT v. Bharat Hotels Ltd. (410 ITR 417), cited in 486 judgments on BharatTax.
Leading authorities on Section 36(1)(ii)
Employee contributions to provident fund and ESI, if paid beyond the due date prescribed by the respective welfare fund statutes, are not allowed as a deduction under the Income Tax Act.
A provision for doubtful debts cannot be added back while computing book profits under Section 115JB of the Income-tax Act for Minimum Alternate Tax (MAT) purposes.
The Supreme Court approves the mixed fund theory, holding that no interest disallowance is warranted under section 36(1)(iii) if investments or advances are made from the assessee's own non-interest bearing funds, even when mixed funds are available. This presumption applies when non-interest bearing funds are sufficient to meet the investments.
An Explanation to a statutory provision can either clarify an existing ambiguity in the main provision or add to and widen its scope.
An Explanation to Section 9(1)(ii) of the Income Tax Act that widens the scope of the provision, rather than merely clarifying it, cannot be applied retrospectively to assessment periods prior to its effective date. Assessments must be made according to the law in force at the relevant time.
If an assessee possesses sufficient interest-free funds, it is presumed that investments yielding exempt income were made from these funds, therefore disallowance of interest expenditure under Section 14A is not justified.
The law applicable for an assessment year is that in force during that year, and an Explanation introduced with effect from a particular date does not retrospectively affect earlier assessment years unless expressly provided.
The Supreme Court held that discount on the issue of debentures is a deductible expenditure that can be spread proportionately over the period for which the debentures remain outstanding, rather than being claimed entirely in the year of issue. This treatment acknowledges the enduring benefit derived from the funds raised through debentures.
