- (1.) THIS appeal is directed against the order of the Tribunal dt. 28th April, 1999. The limited controversy before this Court is whether the Tribunal was justified in allowing the interest amounting to Rs. 18,56,32,417 as revenue expenditure, on the funds borrowed to the tune of Rs. 220 crores ?
(2.) THE case of the respondent-assessee before the AO was that the interest paid on the capital borrowed for expansion of business is allowable under s. 36(1)(iii) of the Act. That prayer was rejected, holding that as the assets were not put in use, the amount of interest cannot be allowed as revenue expenditure. In the appeal before the CIT(A), the CIT(A) affirmed the view taken by the AO. In the appeal before the Tribunal, the Tribunal considered the provisions of s. 36(1)(iii) of the Act and following the view taken by the Allahabad High Court in CIT vs. Tarai Development Corporation Ltd. (1994) 205 ITR 421 (All) held that when there is expansion of business, the new assets are whether put in use, is irrelevant. Once loan has been taken for the purpose of expansion of business, the interest so paid is allowable under s. 36(1)(iii) of the Act. Heard learned counsel for the parties. Learned counsel for the appellant submits that in view of proviso to cl. (iii) of sub-s. (1) of s. 36 of the Act, the interest paid on the borrowings for expansion of business should not be allowable, unless it is put in use. Mr. Kothari, learned counsel for the respondent submits that aforesaid proviso has no application in the present case, as it has been made effective from 1st April, 2004. The year under consideration in the case in hand is asst. yr. 1991-92, therefore, aforesaid amendment has no application. He further places reliance on the observations made by their Lordships of Supreme Court in Veecumsees vs. CIT (1996) 133 CTR (SC) 500 : (1996) 220 ITR 185 (SC). There is no dispute that the proviso, which has been inserted to cl. (iii) of sub-s. (1) of s. 36 of the Act, has been made effective from 1st April, 2004. In Veecumsees' case (supra), their Lordship of the apex Court, considering the findings of the Tribunal, held that jewellery business and cinema theatre business is one composite business of the assessee and therefore, any capital amount borrowed for construction of theatre and interest paid thereon is allowable as revenue expenditure.
(3.) CONSIDERING the view taken by their Lordships in Veecumsee's case (supra) and the proviso inserted under cl. (iii) of sub-s. (1) of s. 36 of the Act w.e.f. 1st April, 2004, we find no infirmity in the order of the Tribunal. In the result, the view taken by the Tribunal is upheld. The Respondent assessee is entitled for deduction of the interest paid on the money borrowed for expansion of the business. The appeal stands disposed of accordingly.;