COMMISSIONER OF INCOME TAX Vs. INDIA PISTONS LIMITED

JUDGEMENT

(1.) THE assessee is a public limited company deriving income from manufacture and sale of automobile parts. THE assessment year involved is 1981-82. THE assessee claimed depreciation and investment allowance on future interest payable on the deferred payment liability incurred in connection with the purchase of machinery by capitalising the interest. That claim was negatived by the Inspecting Assistant Commissioner as it is in the nature of interest on borrowing for acquiring the machinery and it will be allowed in the year in which it was payable. On appeal, the Commissioner held that the assessee had already commenced production in the earlier year and interest payable was allowable as revenue expenditure in the same manner as guarantee commission paid on deferred payment was allowed as revenue expenditure by this court in the case of Sivakami Mills Ltd. v. CIT [1979] 120 ITR 211. On further appeal, the Tribunal followed the decision of the Bombay High Court in the case of Ballarpur Paper and Straw Board Mills Ltd. v. CIT [1979] 118 ITR 613 and allowed the assessee's appeal. On that, the reference has arisen at the instance of the Revenue.

(2.) THE following question of law has been referred to this court for opinion ;

(3.) A direct decision on this aspect is the decision of the Bombay High Court in CITv. Rajaram Bandekar [1993] 202 ITR 514. In that decision, the Bombay High Court has held that (headnote) :