The proviso to s. 36(1)(iii) reads as follows:
"Provided that any amount of the interest paid, in respect of capital borrowed for acquisition of an asset for extension of existing business or profession (whether capitalised in the books of account or not); for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction."
The question whether there is an extension of an existing business or not would have to be determined by applying the tests of common management, common fund etc as laid down in B.R. Ltd 113 ITR 647 (SC), Standard Refinery 79 ITR 589 (SC) etc.
If the conclusion is that the business is "new", then on first principles, the deduction is not allowable because the moneys are not borrowed "for purposes of business". If the business is "existing", then the Proviso kicks in.
In my view, the question whether the asset "increases production" or is merely "office equipment" is not relevant. A distinction is not drawn on the basis whether the asset has a role to paly in production or not. The only test is whether or not it is part of the existing business and whether the interest relates to a period prior to the date when "such asset was first put to use".
As regards Lokhandwala 260 ITR 579 (Bom), I agree that the principle laid down therein i.e. that it makes no difference whether the borrowing is for purposes of acquiring a capital or a revenue asset has been affirmed by the SC. (Incidentally both judgements i.e. Core and Lokhandwala were delivered by S.H. Kapadia J). Of course, this principle is now superceded by the Proviso.
Regards,
Probal.
"Provided that any amount of the interest paid, in respect of capital borrowed for acquisition of an asset for extension of existing business or profession (whether capitalised in the books of account or not); for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction."
The question whether there is an extension of an existing business or not would have to be determined by applying the tests of common management, common fund etc as laid down in B.R. Ltd 113 ITR 647 (SC), Standard Refinery 79 ITR 589 (SC) etc.
If the conclusion is that the business is "new", then on first principles, the deduction is not allowable because the moneys are not borrowed "for purposes of business". If the business is "existing", then the Proviso kicks in.
In my view, the question whether the asset "increases production" or is merely "office equipment" is not relevant. A distinction is not drawn on the basis whether the asset has a role to paly in production or not. The only test is whether or not it is part of the existing business and whether the interest relates to a period prior to the date when "such asset was first put to use".
As regards Lokhandwala 260 ITR 579 (Bom), I agree that the principle laid down therein i.e. that it makes no difference whether the borrowing is for purposes of acquiring a capital or a revenue asset has been affirmed by the SC. (Incidentally both judgements i.e. Core and Lokhandwala were delivered by S.H. Kapadia J). Of course, this principle is now superceded by the Proviso.
Regards,
Probal.