COMMISSIONER OF INCOME-TAX Vs. RAJARAM BANDEKAR

JUDGEMENT

(1.) BY this reference under section 256 (1) of the Income-tax Act, 1961 made at the instance of the Revenue, the Income-tax Appellate Tribunal has referred the following question of law to this court for opinion :

(2.) THE facts relevant for determination of the controversy raised in this reference are in a narrow compass. During the previous year relevant to the assessment year 1974-75, the assessee purchased tow dumpers from Messrs. Hindustan Motors Ltd. The Price of these dumpers was Rs. 16,59,625. 52 (Rs. 16,49,915,80 being the cost of dumpers plus Rs. 9,709. 32 being the cost of transport and transit/erection insurance ). That was the price if the purchase was made on down payment. The assessee purchased these dumpers on deferred payment basis under a scheme prepared by the Industrial Development Bank of India (IDBI ). The scheme enabled the purchasers to acquire machinery for their use and repay the cost over a number of years. As a result, the assessee had to pay by way of interest an additional amount of Rs. 4,23,453. 56 to avail of the benefit of the deferred payment scheme. The assessee was required to pay the above amount of interest, after adjustment of the advance paid by the assessee, within a period of five years in ten six-monthly instalments. The assessee capitalised the interest so payable under the deferred payment scheme and claimed both depreciation and development rebate on such cost of the dumpers, i. e. , the cost including the interest. The Income-tax Officer held that the claim of the assessee was not tenable in view of the fact that the interest which relates to a future period is not allowed to be capitalised. It was also held that such interest was a revenue expenditure which does not result in the acquisition of any asset of enduring benefit. It was, therefore, held that the assessee was not entitled to capitalise the interest and to add the same to the cost of the two dumpers. The Income-tax Officer, therefore, disallowed the assessee's claim for depreciation to the extent the cost of the two dumpers represented the interest capitalised. The Income-tax officer also disallowed the assessee's claim for development rebate on the two dumpers on the ground that the dumpers were road transport vehicles.

(3.) ON appeal, the Appellate Assistant Commissioner affirmed the finding of the Income-tax officer so far as it related to the disallowance of depreciation to the extent of the cost of the dumpers which represented interest for deferred payment of the price thereof. He, however, held that the dumpers could not be held to be falling in the category of road transport vehicles and, as such, the assessee was entitled to development rebate on the cost of it.