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2005 (4) TMI 546 - GUJARAT HIGH COURTTaxability of interest income on debenture - Whether, the ITAT was right in law in holding that the assessee was not entitled to the deduction of interest paid by it on the debentures issued by it ? - HELD THAT:- In the present case, it is an admitted position between the parties that, the payer company is carrying on business, it had borrowed capital by way of debenture issued for such business, and it had paid interest in respect of such capital borrowing. The payer company, therefore, has satisfied all the conditions necessary for invoking Section 36(1)(iii) of the Act and is thus, entitled to deduction of interest paid while computing its income from profits and gains of business. The contention raised on behalf of Revenue that interest would accrue only on a day-to-day basis does not merit acceptance in light of the fact that the parties have specifically provided for a particular rate of interest as well as the manner of payment. Once that is so, it is not possible to rewrite the same and state that interest would accrue, or liability to pay interest would accrue over the entire period of debenture i.e. six years. If this is not possible, the entire interest payment made in the initial year of allotment cannot be artificially spread over the period of six years for the purposes of allowing deduction. Thus, the Tribunal was not right in holding that the assessee i.e. the payer company was not entitled to deduction of interest paid by it on the debentures issued by it in the assessment year under consideration. At this stage, it is stated by learned Advocate for the appellant company that pursuant to the impugned order of Tribunal if any claim is made by each of the payer companies in any of the subsequent years on the basis of proportionate payment in accordance with the order of the Tribunal, the respective assessee companies shall have no objection if the claims which might have been allowed are withdrawn and additions made to the said extent considering that the entire claim of deduction of interest paid is allowed in Assessment Year 1995-96.
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