Section 36(1)(iii) :Interest on Borrowed Funds to buy Property for business deductible

Interest paid on borrowed funds used by dealer to buy property for his showroom was deductible

[2015] 57 taxmann.com 310 (Delhi)

HIGH COURT OF DELHI

Commissioner of Income-tax,(C)-III

v.

DD Industries Ltd

Section 36(1)(iii) of the Income-tax Act, 1961 - Interest on borrowed capital (Acquisition of capital asset) - Assessment year 2007-08 - Assessee was engaged in dealership business of vehicles - Assessee filed its return claiming deduction of interest paid on borrowed capital under section 36(1)(iii) - Assessing Officer finding that borrowed funds had been used for booking of a property which was to be used as a show room of company in future years, held that money borrowed was not utilised for business purpose - He thus rejected assessee's claim for deduction - Tribunal deleted said disallowance - It was noted from records that assessee had sufficient surplus funds for making payment of interest free security deposit to acquire asset in question - Even otherwise, it was a commercial decision which could not have been gone into unless Assessing Officer had concrete material to contend that transaction was a sham or illusory - Whether in view of aforesaid, impugned order passed by Tribunal did not require any interference - Held, yes [Paras 10 and 12] [In favour of assessee]