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2008 (7) TMI 509 - HC - Income TaxInterest on borrowed capital under section 36(1)(iii) – Modernization of existing plant – The assessee obtained loans in foreign currency for modernization and expansion of the existing business. Since the repayment of these loans was stipulated in installments the assessee desired to ensure that the foreign currency required for payment of the loans be obtained at a pre-determined rate and cost. Hence the assessee booked forward contracts for delivery of the required foreign currencies on the stipulated dated. The assessee claimed deduction of the roll over premium for the assessment years 1986-87 to 1994-95. In this case Gujrat High Court held that the roll over premium was paid to mitigate the risk involved in possible higher payment due to adverse fluctuation of the rate of exchange. Thus, the nature of expenditure involved was for the business purpose of raising loans on revenue account. The assessee was entitled to deduction for roll over charges under section 36(1)(iii) of the Act. – Decision in favor of assessee – against the revenue
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