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2013 (2) TMI 236 - HC - Income TaxInterest on loan sanctioned from state government - @ 8% or interest free - assessment year - applicant is a wholly U.P. Government owned corporation established for the purposes of promoting Small Scale Industries - Held that:- It is not in dispute that the State Government when it had sanctioned the loan of Rs.10,00,000/- on 6.7.1972 had clearly stipulated that the loan would carry an interest of 8% per annum. Merely because the assessee had disputed its liability to pay the interest and the loan could be treated interest free loan would not make any difference. The stand of the State Government was consistent throughout and the State Cabinet thoroughly stuck to the earlier stand. The assessee had been following mercantile system of accounting and, therefore, the liability for payment of interest for all the previous assessment years cannot be claimed or allowed in the relevant assessment year. Applying the principles laid down in Swadeshi Cotton and Flour Mills Private Ltd. [1964 (4) TMI 8 - SUPREME COURT] & New Victoria Mills Co.Ltd [1965 (7) TMI 39 - ALLAHABAD HIGH COURT] to the facts of the present case admittedly the applicant was under an obligation to pay an interest at the rate of 8% per annum on the amount of loan advanced by the State Government and merely because it has disputed its liability by contending that it should not be charged, the liability to pay interest was always there and this plea is of no consequence. The liability was ascertained and, therefore, the Tribunal had rightly held that the claim of interest relating to the previous assessment years is not admissible for deduction during the assessment year in question - in favour of Revenue.
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