Deduction for interest paid on borrowed capital –Supreme Court judgement
We couldn't resist the temptation of carrying this important judgement of the Supreme Court today. Holding it for the weekend would have really suffocated us. So we bring you this order of the Supreme Court dated 19 th February 2008.
CLAIMING deduction for interest paid on borrowed capital, advanced interest-free to a sister concern, has for long been a matter of fierce contention between the Revenue and the industry. Conflicting interpretations by the various judicial forums had further added to the woes of both the parties. However, in the latest ruling the Apex Court has clarified that Sec 40(b )( iv) is not a stand-alone Section. It is rather a corollary to Sections 30 to 38. Sec 36(1)(iii) allows deductions for business purposes but Sec 40 puts limitation on the quantum of deduction an assessee is entitled to. Disagreeing with the views of the assessee-company's counsel the erudite Bench held that for claiming deductions under Sections 30 to 38 an assessee is first required to prove that it is entitled to it and then also establish that it is not disentitled to such deductions as per the applicability of Sec 40(b )( iv). Although the Revenue lost this case because of the peculiar facts involved but the arguments of the Addl SG were found to be logical and more in tune with the scheme of things envisaged in the Income Tax Act. The Bench further held that the Sec 40 begins with a non-obstante clause, and even if an allowance comes within the purview of Sections 30 to 38, the assessee could lose the benefit of deduction if the case falls under Section 40 .
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