INCOME TAX ACT, 1961

Section 37(1)

Business expenditure - Allowability - Interest paid on loans from HUDCO -

Assessee availed of loans from HUDCO for the purpose of construction of bridges. Amount of loan disbursed by HUDCO, till its utilisation for purpose of construction of bridges, was temporarily invested in fixed deposits. Assessee earned interest on short-term deployment of loan funds in bank fixed deposits. Interest paid on loans availed of from HUDCO was capitalised as cost of asset and interest income earned on temporary parking of funds was reduced from cost of assets. AO disallowed the claim, by including interest income as taxable, being in the nature of interest earned on temporary deployment of HUDCO loan funds. Assessee took the plea that interest earned ought not to be taxed under the head 'Income from other sources' and that it was actually set-off against interest paid on loans from HUDCO as these deposits had a cost to it and were not made out of interest free funds. Assessee, without prejudice to this contention, also took an alternate plea that entire interest paid on loans availed of from HUDCO was actually to be permitted to be written off as revenue expenditure. Held: Alternate claim raised by assessee was allowed and AO was directed to allow entire interest paid on loans from HUDCO as revenue expenditure.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2008-09 to 2013-14

INCOME TAX ACT, 1961

Section 56(1)

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