COMMISSIONER OF INCOME TAX Vs. SHANKARAPPA H C

JUDGEMENT

(1.) THE assessee is an exhibitor of films and running a theatre called "Nanda Picture House" since 1972. THE assessee is a Hindu undivided family which purchased a site at Mandya in the year 1972 and commenced construction of another theatre "Gurusree" on the said site. He borrowed funds from the Karnataka Bank Ltd., Mandya, for purposes of construction.

(2.) DURING the previous year relevant to the assessment year 1981-82, the assessee claimed deduction of interest in a sum of Rs. 56,429 paid to the Karnataka Bank Limited. The said interest was claimed as the interest on the loan raised from the bank for the construction of the theatre. Similarly, for the assessment years 1982-83, 1983-84 and 1984-85, the assessment years under consideration, the assessee paid interest amounting to Rs. 1,65,738, Rs. 2,29,206 and Rs. 3,97,032 and claimed the same as revenue expenditure against its business income. The Income-tax Officer disallowed the assessee's claim for deduction of interest on the ground that borrowed amount on which interest had been paid was utilised for the construction of a new cinema building and, as such, the payment of such interest had to be capitalised. The Income-tax Officer also noticed that the theatre building was still under construction and the construction was incomplete during the previous years relevant to the assessment years 1982-83, 1983-84 and 1984-85. Hence, as per the Income-tax Officer the payment of interest till construction of the theatre was complete had to be capitalised and the same was not admissible as revenue expenditure against the assessee's business income. On appeal by the assessee, the Commissioner of Income-tax (Appeals) by relying on the decision of the Tribunal in I. T. A. No. 776/Bang, of 1982, in the assessee's own case for the assessment year 1981-82 dated March 19, 1984, deleted the disallowance made by the Income-tax Officer and held that the interest claimed by the assessee is an allowable deduction against the assessee's business income.

(3.) THE Department filed C. P. Nos. 339-341 of 1990 to this court. THE High Court was of the opinion that the question of law did arise from the order of the Tribunal and accordingly directed the Tribunal to refer the question of law claimed by the Revenue along with the statement of case. In pursuance of the direction issued by the High Court, the Tribunal has referred the following question of law with an appropriate statement of case ;