Interest paid on borrowings made for purchase of capital assets "not put to use" in the concerned financial year is eligible for income tax deductions, the Supreme Court has ruled.
The apex court said that all that was required is that the capital borrowed must be for the purpose of business for which interest was also paid.
A bench of Justices S H Kapadia and B Sudershan Reddy passed the ruling while dismissing an appeal filed by the Income Tax department.
The department had filed the appeal after the appellate tribunal and the Gujarat High Court had held that the assessee company M/s Core Health Limited was not entitled to deductions under Section 36(1) and (III) of the Income Tax Act, 1961.
The company had claimed a deduction of Rs 1.56 crore (Rs 15.6 million) for the accounting year 1992-93, on the ground that the machinery borrowed by it by paying interest to the tune of the said amount was not put to use, thus, entitling it to the deduction under the relevant section.
However, the Income Tax department rejected the plea on the argument that the assessee was not entitled to deductions in view of Section 43 (1), which specified the "actual cost" for the purpose of assessment; a contention rejected by the appellate tribunal and the High Court.