Contact us   Feedback   Annual Subscription   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

Allowability of interest on capital borrowed u/s 36 provision from assessment year 2016-17.

Income Tax - Direct Tax Code - DTC - By: - CA DEV KUMAR KOTHARI - Dated:- 12-8-2015 - References and links: Section 36.1. iii of the IT Act, 1961. Relevant judgments on link for SC judgments https://www.taxmanagementindia.com/visitor/case_laws_for_sections.asp?court=SC&Prov=036&offset=0 And links for other judgments of High Courts and Tribunals which can be easily found in search tools of the website. Provision about deduction for interest as per s. 36 (1) (iii) is reproduced below with .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ount or not); for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction.] Explanation.-Recurring subscriptions paid periodically by shareholders, or subscribers in Mutual Benefit Societies which fulfil such conditions as may be prescribed, shall be deemed to be capital borrowed within the meaning of this clause; 7. Inserted by the Finance Act, 2003, w.e.f. 1-4-200 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ourts have taken similar views on both. The provision has remained un-amended for a long period of time. We find first amendment in related provision was made in 2004 and to further amend the amendment of 2004, again amendment has been made in the proviso in 2015 as per foot notes to the clause as reproduced above. The scope of deduction allowed under this provision was long ago settled by many judgments of the Supreme Court of India. According to the view taken borrowing of capital for the purp .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t to use during the previous year. Even scope of restriction imposed by the proviso inserted in 2004 was settled by the Supreme Court. Readers may read judgments on this provision by searching the website. Interest is a day to day expenditure and does not add to value of asset: In this regard it is worth to consider the nature of expenditure by way of interest on capital borrowed. Interest is payable because capital has been borrowed. It will be allowable if capital is borrowed for the purpose o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ed for use in business, the nature of interest remain the same- it is a cost of holding and carrying inventory or assets. It does not add to the market value of asset. Therefore, interest should be treated as revenue expenditure, when it is paid on capital borrowed for the purpose of an existing business. Deferment of allowance of interest has not much effect on tax collection: Deferment of allowance in respect of interest or interest allowed after capitalisation in cost of assets, really does n .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

5, as reproduced above has not much impact on revenue of government. Government s approach: Against liberal interpretation adopted by courts including the Supreme Court , long ago, our Central Government has shown tendency of making provisions to deny benefits of liberal interpretation of provisions taken by courts. We find that even on petty issue of JAL PAAN expenses incurred in course of business allowed by the Supreme Court, retrospective amendment was brought into the Income-tax Act, 1961. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

and should be made retrospective in clear terms. When we find that there is hardly any discussion in the Parliament, and tax provisions are passed as proposed, without any deliberation by members of Parliament, it appears that the process of passing such law is taken as a mere formality and it is imposition of wisdom of draftsmen and bureaucrats and cannot be called legislative intention. When a provision which was on statute book for a long period of time and it has been interpreted, legislati .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tax officers and most of courts. The amendments of 2004 has already created lot of litigation, further amendment made in 2015 is also likely to be a reason of litigation by tax payers and by revenue both. Analysis of proviso: The proviso has imposed some restrictions on allowability of interest on capital borrowed: The proviso as applicable from AY 2016-17 is analysed below: Provided that any amount of the interest paid, in respect of : capital borrowed for acquisition of an asset whether capita .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version