TMI Blog1993 (1) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... 16,59,625.52 (Rs. 16,49,915.80 being the cost of dumpers plus Rs. 9,709.32 being the cost of transport and transit/erection insurance ). That was the price if the purchase was made on down payment. The assessee purchased these dumpers on deferred payment basis under a scheme prepared by the Industrial Development Bank of India (IDBI). The scheme enabled the purchasers to acquire machinery for their use and repay the cost over number of years. As a result, the assessee had to pay by way of interest an additional amount of Rs. 4,23,453.56 to avail of the benefit of the deferred payment scheme. The assessee was required to pay the above amount of interest, after adjustment of the advance paid by the assessee, within period of five years in ten six-monthly instalments. The assessee capitalised the interest so payable under the deferred payment scheme and claimed both depreciation and development rebate on such cost of the dumpers, i.e., the cost including the interest. The Income-tax Officer held that the claim of the assessee was not tenable in view of the fact that the interest which relates to a future period is not allowed to be capitalised. It was also held that such interest was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elopment rebate on the cost of dumpers because the Revenue did not go in appeal to the Tribunal against the same and, as such, it has become final. The only issue for consideration relates to the computation of actual cost of the two dumpers in the hands of the assessee for the purpose of allowability of depreciation and development rebate. In this connection, learned counsel fairly stated that at the time when the appeal was decided by the Tribunal there was a conflict of judicial opinion in regard to the includibility of future interest on assets purchased on instalment systems of payment or under deferred payment schemes in the actual cost of the assets. But that controversy has now been set at rest by Parliament by insertion of Explanation 8 to section 43(1) of the Act by Finance Act, 1986, with retrospective effect from April 1, 1974, and as a result thereof, from the assessment year 1974-75 and onwards, any amount payable as interest in connection with the acquisition of an asset which is relatable to any period after such asset had been first put to use cannot be included in the actual cost of such asset. Learned counsel for the assessee, on the other hand, relied on the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r which is acquired by the assessee after the 31st day of March, 1967, but before the 1st day of March, 1975, and is used otherwise than in business of running it on hire for tourists, exceeds twenty-five thousand rupees, the excess of the actual cost over such amount shall be ignored, and the actual cost thereof shall be taken to be twenty-five thousand rupees.... Explanation 8. - For the removal of doubts, it is hereby declared that where any amount is paid or is payable as interest in connection with the acquisition of an asset, so much of such amount as is relatable to any period after such asset is first put to use shall not be included, and shall be deemed never to have been included, in the actual cost of such asset. From a bare reading of Explanation 8, it is evident that this Explanation was inserted for removal of doubts in regard to the includibility of interest relatable to any period after the asset has first been put to use in the computation of its actual cost. By this Explanation, it has been declared by Parliament that " where any amount is paid or is payable as interest " in connection with the acquisition of an asset " so much of such amount as is relatable t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation 8 to section 43(1) of the Act with retrospective effect from April 1, 1974. We have perused the above decision of the Karnataka High Court. The following observations of the court are pertinent (at page 478): "It is clear from the statement of facts referred to above that the assessee obtained delivery of machinery, for which purpose negotiable instruments were passed on to the seller in full consideration of the sale transaction. The title vested with the assessee, immediately on taking delivery of the machinery. In a case falling under the scheme covered by the IDBI Scheme, the question of postponing the vesting of title does not arise, because for the seller, the IDBI gives the facility of encashing the negotiable instruments on discount. But as between the purchaser and the seller, the transaction is completed on delivery and handing over of the negotiable instruments in question. There can be no doubt that the totality of the figure of the entire negotiable instruments represents the consideration and the amount actually received by the seller on discounting the negotiable instrument represents the concessional value at the most. In a commercial transaction, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter, in order to promote his sales, agrees to supply the machinery subject to payment of an agreed minimum amount in advance and the balance in half-yearly or yearly instalments. A separate bill promissory note is drawn/made for each instalment together with interest payable on the deferred instalments. The bills or promissory notes are accepted/guaranteed by/or on behalf Of the purchaser-user and delivered to the manufacturer-seller who gets them discounted with his banker thus realising the cost of the machinery ; the discount payable by him to his banker is included in the amounts of the bills by way of interest for the period of deferred payment. The manufacturer's/seller's banker in turn takes the discounted bills to the IDBI and gets them rediscounted thus obtaining the amount paid to the manufacturer-seller. The discounting bank takes back the bills from the, IDBI against payment, three working days in advance of their due dates and obtains payment thereof from the acceptor/guarantor of the promissory notes. " (emphasis supplied). The fact that the supplier charges interest from the purchaser, in addition to the cost of the machinery, is also evident from the following re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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