ASSISTANT COMMISSIONER OF INCOME TAX, AHMEDABAD v. ARVIND POLYCOT LTD.

Case Details & Bench

Court: High Court
Hon'ble Judges: S. H. Kapadia
B. Sudershan Reddy
Judgment Date: 2008-02-08
Court Decision / Holding: Appeal dismissed; no order as to costs.
Final Disposition: Dismissing the appeal; with no order as to costs.

Parties to the Case

Appellants / Petitioners

Assistant Commissioner of Income Tax, Ahmedabad

Respondents

Arvind Polycot Ltd.

Legal Representation & Advocates

Counsels for Petitioners

• P. Vishwanatha Shetty
• T. Srinivasa Murthy
• Gaurav Agrawal
• B.V. Balaram Das

Counsels for Respondents

• S. Ganesh
• Amar Dave
• Rustom B. Hathikhanawala
• E.C. Agrawala
• J.P. Shah
• Manish Shah
• Harish J. Jhaveri
• Pardiwala
• Jay Savla
• Reena Bagga

Case Synopsis & Summary

This Supreme Court judgment deals with whether interest paid on borrowings for capital assets not put to use in the relevant financial year can be claimed as a deduction under Section 36(1)(iii) of the Income-Tax Act, 1961. The matter arises in Civil Appeal No. 1182 of 2008, heard by a Division Bench comprising S. H. Kapadia and B. Sudershan Reddy. The Department had appealed the Gujarat High Court’s decision, challenging the allowability of such interest as a deduction. The Court frames the legal question: whether the interest paid on borrowings for capital assets not yet put to use in the financial year can be permitted as an allowable deduction under s.36(1)(iii). The Court cites a controlling precedent, including its own prior decision in Dy. Commissioner of Income Tax, Ahmedabad v. M/s Core Health Care Ltd., and references Civil Appeal Nos.3952–55 of 2002. In a decisive ruling, the Court answers in favour of the assessee and against the Department, dismissing the Department’s appeal with no order as to costs. The decision clarifies that deduction under s.36(1)(iii) is allowable even when the asset financed is not yet used in the relevant year, aligning with the earlier precedent and upholding the assessee’s claim.

Provisions of Law Cited

Income Tax Act, 1961, Section 36(1)(iii)

Submissions & Arguments

Contentions of Appellants / Petitioners

The Department contends that deduction under Section 36(1)(iii) should not be allowed for interest on borrowings pertaining to capital assets not put to use in the relevant financial year. It relies on the statutory text and argues for a restrictive interpretation, seeking to limit the deduction to amounts connected with assets in actual use during the year. The Department also cites prior authorities to support a view that the deduction should be unavailable where the asset is not yet put to use, seeking a decision that narrows the scope of s.36(1)(iii).

Contentions of Respondents

The assessee (Arvind Polycot Ltd.) contends that interest on borrowings for capital assets not used in the year should be deductible under s.36(1)(iii), arguing for a broad reading of the provision that recognizes the underlying commercial reality of financing assets for future use. It relies on the reasoning and outcomes of previous precedents (notably the cited Core Health Care decision) supporting allowability, and urges that the deduction aligns with the legislative intent to allow expenditure incurred for capital assets in acquisition as part of the cost of production and other income-deducting mechanisms.

Cited Precedents (1)

Case Name	Citation	Treatment	Explanation
Dy. Commissioner of Income Tax, Ahmedabad v. M/s Core Health Care Ltd.	2008(2) Scale 327	Positive	Cited and relied upon by the Court as supportive precedent for the assessee’s position on allowability under s.36(1)(iii).

Extracted Judgment Text

Exact text extracted from official judgment records.

~/ ~ A B c E (2008) 2 S.C.R. 650 # ASSISTANT COMMISSIONER OF INCOME TAX, AHMEDABAD 'II. A~VIND POLYCOT LTD. (Civil Appeal No. 1182 of 2008) ## FEBRUARY 8, 2008 [S.H. KAPADIA AND B. SUDERSHAN REDDY, JJ.] J.. - - _Income Tax Act, 1961 s.36(i)(iii) Interest paid in respect of borrowings on capital assets not put to use in the_ - _concerned financial year Held : Is allowable deduction._ The question which arose of consideration in the present appeal is : Whether interest paid in respect of borrowings on capital assets not put to use in the D[concerned ][financial year can be permitted as ][allowable ] deduction under Section 36(1) (iii) of the Income-Tax Act, 1961? ## Dismissing the appeal, the Court ·HELD: Interest paid in respect of borrowings on capital assets not put to use in the concerned financial year is allowable deduction under s.36(1 )(iii) of the Income-Tax Act, 1961. [Para 2] [651-8, C] _Dy. Commnr. of Income Tax, Ahmedabad v. Mis. Core Health Care Ltd._ 2008(2) Scale 327 - relied on. F A ·~ -: ).. CIVILAPPELLATE JURISDICTION: Civil Appeal No. 1182 of 2008. From the Judgment and Order dated 19.10.2005 of the G[High Court of judicature of Gujarat atAhmedabad ][in ][Tax ][Appeal ] No. 526 of 2003. ,,., P. Vishwanatha Shetty, T. Srinivasa Murthy, Gaurav Agrawal and B.V. Balaram Das for the Appellant. H 650 ASSISTANT COMMISSIONER OF INCOME TAX, AHMEDABAD _v._ ARVIND POLYCOT LTD. [KAPADIA, J.] 651, S. Ganesh, Amar Dave, Rustom B. Hathikhanawala, E.C. Agrawala. J.P. Shah, Manish Shah, Harish J. Jhaveri, Pardiwala, Jay Savla and Reena Bagga for the Respondent. A The Judgment of the Court was delivered by KAPADIA, J. 1. Leave granted. B 2. In this civil appeal filed by the Department the question of law arises for determination which question is as follows: "Whether interest paid in respect of borrowings on capital assets not put to use in the concerned financial year can 1 c be permitted as allowable deduction under Section 36(1 )(iii) of the Income-tax Act, 1961 ?" 3. Our answer to the above-mentioned question is squarely ' covered by our decision in favour of the assessee and against the Department in the case of Dy. Commr. of Income Tax, D Ahmedabad v. Mis. Core Health Care Ltd. in Civil Appeal , Nos.3952-55 of 2002. ... 4. Accordingly the said question is answered in favour of assessee and against the Department. Consequently the • Department's civil appeal is dismissed with no order as to costs. E D.G. Appeal dismissed. 1