COMMISSIONER OF INCOME TAX Vs. CHALLAPALLI SUGARS LIMITED

JUDGEMENT

(1.) THIS is a reference made under Section 66(1) of the Income-tax Act, 1922, and the question referred is :

(2.) THE essential facts are: THE assessee in this case is a public limited company engaged in the manufacture and sale of sugar. THE company went into production from January 22, 1958. Its first accounting period which relates to 1959-60 assessment year ended on June 30, 1958. THE company claimed depreciation and development rebate on the sums which they paid by way of interest. THE payment of interest was Rs. 2,38,614. It appears that the company borrowed considerable sums of money from the Industrial Finance Corporation of India for the installation of machinery and other assets. It is on this borrowed capital that the interest was paid. THE interest related to the period prior to the commencement of the business from the date of the borrowing. THE assessee contended that this payment of interest added to the cost of machinery, plant, etc., to the assessee and as such while calculating depreciation admissible to the assessee the interest paid should be treated as a part of the cost of the machinery, plant, etc., to the assessee.

(3.) THE matter was carried to the Income-tax Appellate Tribunal. Noting the fact that the interest payments in dispute represented payments on borrowed capital utilised for the purchase of machinery, erection, construction, etc., it held that "the cost to the assessee must necessarily include all expenditure, which it has to incur for acquiring and installing the asset. THE interest paid or payable during the period of such acquisition and installation has, therefore, to be considered only as a part of the cost to the assessee. THE appeal, therefore, was dismissed.