K SAMPATH KUMAR Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee is a partner in M/s. Sam Engineering Company, Coimbatore, and he was being assessed to income-tax on his share of the income as a partner of the firm. On July 24, 1978, he started his own separate business, namely, manufacture and sale of Sam pumps. For this purpose, he purchased machinery out of the monies borrowed and the machinery was installed during the year 1979-.80.

(2.) THE entire amount of interest paid on the capital borrowed came to Rs. 35, 526 which has been charged to the profit and loss account along with other expenses. THE assessee's case was that the interest payment should be treated as a revenue expenditure and, therefore, it should be charged to the profit and loss account. THE assessee also filed an application under section 144A to the Inspecting Assistant Commissioner who by his order dated April 7, 1980, directed the apportionment of the portion of the interest relating to the borrowals for the purchase and erection of the machinery and plant and allowed the same to be capitalised.

(3.) THE mere purchase and erection of the machinery will not amount to the starting of the business, though they may be essential preliminary steps for starting the business. THE assessee can be taken to have started the business only when his plant and machinery go into production and, in this case, the Tribunal finds that during the assessment year , the Sam pumps had not been produced and that except for the erection of the plant with the machinery, nothing else took place. THErefore, only when the business is commenced, the interest paid on the capital borrowed for the purchase of machinery and plant can be charged to the profit and loss account. Before the business is commenced, there is no question of the interest payment being charged to that account. Thus, in whatever manner the matter is looked at, the assessee's claim that he is entitled to charge interest on borrowed capital to the profit and loss account cannot be legally sustained. In this view of the matter, we do not think that there is any justification for directing the Tribunal to refer the questions referred to above.