TMI Blog1987 (2) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... into use in the accounting year under reference ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the sum of Rs. 2,740 being the amount of travelling expenses incurred for procuring loan for construction of Mayank cinema is allowable as a deduction ? " This reference relates to the assessment year 1976-77. M/s. Shah Theatres Private Limited (hereinafter referred to as " the assessee ") is a private limited company incorporated in 1962. It carries on the business of exhibition of motion pictures. During the relevant previous year, the assessee started construction of a cinema building known as " Mayank " cinema at Jaipur and for that purpose, it borrowed money. A sum of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tance of the Revenue. The relevant provision with regard to deduction from the income of the assessee relating to an amount of interest is contained in section 36(1)(iii) which provides for deduction of the amount of interest paid in respect of capital borrowed for the purpose of business or profession. In the Indian Income-tax Act, 1922, the corresponding provision was contained in section 10(2)(iii). The aforesaid provision contained in section 10(2)(iii) came up for consideration before the Bombay High Court in Calico Dyeing and Printing Works v. CIT [1958] 34 ITR 265 (Bom).In that case, the assessee-firm was carrying on the business of bleaching, dyeing and printing cloth and had borrowed money in order to extend its business and with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd exclusively for the purpose of the assessee's business. In Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167, the Supreme Court was dealing with a case where the assessee had borrowed money for the installation of machinery and plant and the interest paid on the said loan was being claimed as part of the capital expenditure as the cost of the machinery by the assessee. The Revenue, on the other hand, was asserting that the said interest paid on loan must be treated as revenue expenditure. The Supreme Court accepted the claim of the assessee and held that in a case where money is borrowed by a newly started company which is in the process of constructing and erecting its plant, the interest incurred before the commencement of production ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore and had borrowed money for that purpose and the interest paid on the said borrowings was claimed as business expense. The Gujarat High Court held that the said interest was deductible as business expenses. It was observed that where borrowing is for the purpose of a business, the interest paid on such a borrowing becomes eligible for deduction contemplated by section 10(2)(iii) of the Act of 1922 or section 36(1)(iii) of the Act of 1961, and this would be so, whether the capital is invested in order to acquire a revenue asset or a capital asset, because the act of borrowing capital is distinct from the act of investment of the capital to acquire an asset and that if there is no existing business with reference to which the capital is bo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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