TMI Blog1985 (3) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... came to Rs. 35,526 which has been charged to the profit and loss account along with other expenses. The assessee's case was that the interest payment should be treated as a revenue expenditure and, therefore, it should be charged to the profit and loss account. The assessee also filed an application under section 144A to the Inspecting Assistant Commissioner who by his order dated April 7, 1980, directed the apportionment of the portion of the interest relating to the borrowals for the purchase and erection of the machinery and plant and allowed the same to be capitalised. The Income-tax Officer, however, rejected the assessee's claim and held that the entire interest of Rs. 35,526 is to be added to the cost of the machinery. There was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n applying the decision of the Gujarat High Court in the case of Alembic Glass Industries [1976] 103 ITR 715 to the facts of the appellant's case in disallowing interest claim of Rs. 35,526 ? 4. Whether the Appellate Tribunal while disallowing interest claim erred in ignoring the fact that the appellant was already engaged in business as a partner in M/s. Sam Engineering Co. and the proprietary business is only a continuation and extension of this business ? " That petition having been rejected, the assessee has now filed this application under section 256(2) of the Act seeking a direction to refer the said questions for the opinion of this court. We find that questions Nos. 2 to 4 referred to above are comprised in the first question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchase of the machinery and plant, the interest paid on the said borrowing cannot be claimed as revenue expenditure in the assessment year, when the plant and machinery have been installed but the production has not commenced. According to the Tribunal the new business started by the assessee has nothing to do with the business in which he was a partner and, therefore, so long as the machinery and the plant have not gone into production but only installed during the assessment year, the interest paid on such borrowing during the assessment year cannot be charged to the profit and loss account. The learned counsel appearing for the assessee relies on the decision of the Karnataka High Court in Addl. CIT v. Southern Founders [1979] 120 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The court, in our view, very rightly pointed out that the user of the building during the assessment year may not be quite relevant for the allowance of the interest as a revenue expenditure, though the user may be relevant for the purpose of the allowance of depreciation. In this case, the undisputed facts are that the assessee purchased the plant and machinery with borrowed capital and installed the same during the assessment year. Apart from the assessee being a partner of a firm which carries on some other business, the assessee has not started the business of manufacturing Sam pumps which he had proposed to start. The mere purchase and erection of the machinery will not amount to the starting of the business, though they may be essenti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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