TMI Blog1993 (8) TMI 104X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner of Income-tax (Appeals) VIII, Bombay (Shri Raghu Nath). The issue agitated is in connection with the assessee's claim for deduction of an amount of Rs. 24,44,400 being the full amount of interest payable in connection with the purchase of one machine from Hindustan Machine Tools Ltd. (HMT for short), Bombay. The assessee is already in business of manufacturing and is regularly assessed to tax. In February 1979, the assessee had placed an order for purchase of one machine from HMT Ltd. As per the proforma invoice dated 11-3-1980, the cost of the machine (inclusive of central excise duty @ 8% and central sales-tax @ 4%) was stated to be Rs. 33,49,531.48. The assessee had made advance payment of Rs. 3,49,531.48. Therefore, the balance a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceptance as the usance bills matured from time to time. 3. The assessee, in the books of account, capitalised the entire amount of interest of Rs. 24,44,400 by adding the same to the cost of the machinery purchased. Depreciation and investment allowance was also provided in the books of account and claimed in the statement of income. While filing the statement of income, the assessee also made claim for full deduction of the interest liability of Rs. 24,44,400. The Assessing Officer rejected the claim for the depreciation and investment allowance on the capitalised amount of Rs. 24,44,400. He also rejected the assessee's claim for full deduction of interest payable by the assessee during the seven-year duration of deferred credit. However ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ossible when the assessee is in business as could be observed at page 176 in the case of Challappalli Sugars Ltd. The assessee's claim for full deduction was fully supported by the decision in the case of CIT v. Tensile Steel Ltd. [1976] 104 ITR 581 (Guj.) and approved by the Bombay High Court in the case of Ballarpur Paper Straw Board Mills Ltd. v. CIT [1979] 118 ITR 643. He has also stated that Explanation 8 to section 43(1) inserted by the Finance Act, 1976 with retrospective effect from 1-4-1974 supported the case of the assessee, because now the assessee cannot capitalise such interest liability, but it has nowhere stated that such interest liability, once incurred, cannot be allowed by way of deduction. The learned Senior Department ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the case, and on consideration of the relevant agreements, the Tribunal was correct in holding that the interest on the unpaid price of the plant and machinery on deferred payment basis. did not form a part of the actual cost of the assets to the assessee within the meaning of section 43 of the Income-tax Act, 1961 and that the same was allowable as revenue expenditure?" The High Court held that as per the terms of the contract with the vendors, the payment of interest was an integral part of the payment of the price and, therefore, the interest formed part of the actual price and, therefore, the same has to be regarded as actual cost of plant and machinery to the assessee. In our opinion, this decision of the Bombay High Court squarely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this case there is no borrowal as we have seen earlier when the facts were narrated in respect of the terms of contract and the manner in which usance bills are drawn and accepted by the Grindlays Bank Ltd. No borrowing is raised in the sense that moneys are paid on behalf of the assessee to the suppliers of the machinery. What is done is that Grindlays Bank Ltd. agreed to make payment on various dates on which instalments shall become due. These instalments are in respect of part of the unpaid price of the cost of machinery and interest element on unpaid price. Therefore, it cannot be said that liability for payment of interest has arisen, as is contended on behalf of the assessee. In the absence of any borrowing, there is no question ..... X X X X Extracts X X X X X X X X Extracts X X X X
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