Commissioner of Income Tax Vs Union Co. (Motors) (P) Ltd.

@JUDGMENTTAG-ORDER

N.V. Balasubramanian, J.@mdashThe question of law referred at the instance of the Revenue reads as under :

Whether, on the facts and in the circumstances of the case and having regard to the Expln. 8 to Section 43(1) the Tribunal was correct in law in holding that the assessee''s claim of capitalisation of interest payable on assets purchased under the deferred payment scheme of IDBI is justified ?

2. The assessment year we are concerned is 1985-86. The assessee is a company in which public are not substantially interested. The AO, in the course of assessment proceedings, rejected the claim of the assessee for capitalisation of interest payable on assets purchased under the deferred payment scheme of IDBI and recomputed the depreciation and investment allowance claims of the assessee. The AO relied upon the Expln. 8 to Section 43(1) of the IT Act to reject the claim of the assessee. The CIT(A) upheld the claim of the assessee in respect of depreciation, but rejected the claim of the assessee with regard to investment allowance. The Department went on appeal before the Tribunal challenging the order of the CIT(A) allowing depreciation on capitalised amount of the interest payable under IDBI deferred payment scheme. The Tribunal followed an order in the case of India Piston Repco Ltd. v. IAC (1998) 30 TTJ (Mad) 502 and held that the interest payable under IDBI deferred payment scheme should be added as part of the cost of the capital asset and in this view, the Tribunal dismissed the appeal preferred by the Revenue. The order of the Tribunal is the subject-matter of the present tax case reference.

3. We heard the learned senior standing counsel for the Revenue. The counsel for the assessee was not present yesterday when the case was heard and today also the counsel for the assessee is not present. We find that the order of the Tribunal rendered in the case of India Piston Repco Ltd. (supra), was the subject-matter of the tax case reference before this Court and this Court in Commissioner of Income Tax Vs. India Pistons Ltd., has held that the interest paid under the deferred payment scheme for the purchase of plant and machinery would not be includible as part of the actual cost of the asset for the purpose of allowing depreciation. The decision in CIT v. India Pistons Ltd. (supra) was followed by this Court in Commissioner of Income Tax Vs. L.G. Balakrishnan and Brothers Ltd., . Following the two decisions of this Court in CIT v. India Pistons Ltd. (supra) and CIT v. L.G. Balakrishnan & Brothers Ltd. (supra), we hold that the Tribunal committed an error in holding that the interest paid or payable under IDBI Scheme should be capitalised. The view of the Tribunal that the interest paid under the IDBI deferred payment scheme is liable to be included as part of the actual cost of the asset is patently erroneous in view of the clear language of Expln. 8 to Section 43(1) of the Act. Hence, we answer the question of law referred to us in negative and in favour of the Revenue and against the assessee. However, in the circumstances, there will be no order as to costs.