INCOME TAX ACT, 1961

Section 36(1)(iii)

Business deduction under section 36(1)(iii) - Interest on borrowed capital - Swap charges on loans obtained by assessee -

Assessee has availed of loan from US Bank on floating rate of interest. Assessee chose to convert said loan carrying floating rate of interest into fixed rate of interest. Assessee was required to pay certain swap charges for the said conversion from floating to fixed rate. This swap charges liability had been duly incurred by assessee during the year. Assessee characterized the said swap charges in the nature of interest. This was sought to be disallowed by AO on the ground that the said expenditure was of capital in nature. Held: Swap charges which assessee had incurred for conversion from floating to fixed rate of interest, would necessarily partake the character of interest. Interest paid by assessee when loan was in floating rate, was duly allowed by AO. Hence, character of the transaction did not change pursuant to this swap from floating to fixed rate. The utilization of loans for the purposes of business was not disputed by AO hence, there was no question of disallowance of any interest, whether nomenclature as interest or swap charges. The nomenclature of transaction was absolutely irrelevant than substance of the transaction. Accordingly, assessee was entitled for deduction towards swap charges.

Supported by:CIT v. D.Chetan & Co. (2016) 390 ITR 36 (Bom) : 2016 TaxPub(DT) 4887 (Bom-HC).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2003-04

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