CIT Vs. Aditya Prop con (P) Ltd. (Rajasthan High Court)
The present case is of acquisition of land for its development in course of real estate activity of the assessee. Assessee is about to complete one project and to continue the activities has purchased another land to develop another project. The argument of the learned Departmental Representative that the proviso would apply to the assessee’s case cannot be accepted. We are of the considered opinion that the purchase of inventory is continuation of the same business activity in routine course and cannot be termed as extension of the business activity. The proviso has been inserted to dis entitle claim of interest on funds borrowed for acquisition of capital assets for the period upto the asset is put to use. The term ‘put to use’ here applies to capital asset only because a capital assets is held to facilitate the business activity and sometimes it needs to be prepared after its acquisition for being used to facilitate the business activity. As against this, purchase and holding of inventory item itself is a business activity. In absence of this proviso, section 36(1) (iii) earlier entitled assessee to claim interest in respect of capital assets, even for the period during which they were under construction as held in various judgments pointed out by the learned Authorized Representative of the assessee. The interest was found allowable despite its capitalization in the books of accounts in the judgments. We are therefore, of the opinion that the interest on funds borrowed to purchase land which is part of inventory of the assessee company is an allowable deduction under section 36(1)(iii).
