“Section 32(1)(iii)”
The decision most relied on for Section 32(1)(iii) is Munjal Sales Corporation v. CIT (298 ITR 298), cited in 191 judgments on BharatTax.
Leading authorities on Section 32(1)(iii)
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.
Interest on borrowed capital utilized for acquiring a capital asset is capitalized until business commences. Once business is set up, this interest is deductible under section 36(1)(iii) even if the asset has not yet been put to use, accepting commercial accounting standards in the absence of contrary statutory provisions.
The rule of consistency requires that in the absence of any change in material facts or law, a different view or decision on an issue cannot be adopted for subsequent assessment years, thus ensuring uniformity in tax assessments.
The claim of depreciation under Section 32 of the Income Tax Act for assets used by charitable trusts is permissible, affirming the Bombay High Court's view that such a claim does not amount to a 'double benefit'.
The Legislature abolished terminal depreciation under section 32(1)(iii) and the taxing of balancing charge under section 41(2), replacing these provisions with the requirement to reduce sale proceeds of depreciable assets from the block of assets.
The Assessing Officer is bound by the rule of consistency and cannot take a contrary or different stand on an issue in a subsequent assessment year if the factual position remains identical to previous years where a deduction was allowed.
Where an assessee has mixed funds (borrowed and interest-free) and makes interest-free advances, it is presumed that such advances are made from interest-free funds if sufficient interest-free funds are available. This principle guides the disallowance of interest on borrowed capital under Section 36(1)(iii) if funds are diverted for non-business purposes without business expediency.
A non-compete fee, being a capital expenditure, is not allowable as a deduction from income and does not qualify for depreciation under Section 32(1)(ii) of the Income-tax Act, 1961.
