JT. COMMISSIONER OF INCOME TAX, VALSAD, GUJARAT versus M/S.UNITED PHOSPHOROUS LTD.

Citation: [2008] 2 S.C.R. 658 · Decided: 08-02-2008 · Supreme Court of India · Bench: S.H. KAPADIA · Disposal: Case Partly allowed
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Judgment (excerpt)

[2008) 2 S.C.R. 658 
A 
JT. COMMISSIONER OF INCOME TAX, VALSAO, GUJARAT 
,._... 
.. 
B 
II. 
MIS.UNITED PHOSPHOROUS LTD. 
(Civil Appeal No. 1183 of 2008) 
FEBRUARY 8, 2008 
[S.H. KAPADIA AND B. SUDERSHAN REDDY, JJ.] 
Income Tax Act, 1961: 
s.36(1)(iii) - Interest paid in respect of borrowings on 
C capital assets not put to use in the concerned finanCial year -
Held: Can be permitted as allowable deduction under 
s. 36(1 )(iii). 
s.34(1) and Expln. 5 to s.32(1) - Option to claim partial 
D depreciation in respect of block of assets - If available - High 
Court relied upon Mahendra Mills case, in which it was held 
that assessee has option to claim depreciation - Held: In 
Mahendra Mills case, the concept of block of assets was not 
there -Also, s. 34( 1) has been omitted w. e. f 1. 4. 1988 - Hence, 
E matter remitted to High Court for re-consideration. 
The two questions which arose for consideration in 
the present appeal are 1) Whether interest paid in respect 
of borrowings on capital assets not put to use in the 
concerned financial year can be permitted as allowable 
F deduction under s.36(1 )(iii) of the Income-tax Act, 1961 and 
2) Whether respondent-assessee had an option in law to 
claim partial depreciation in respect of any block of assets. 
Partly allowing the appeal, by answering the first 
question in favour of the assessee and remitting the 
G second question to the High Court, the Court 
. ·" 
HELD: 1. Question No.1 is squarely covered by 
:,.... 
decision of this Court in favour of the assessee and 
against the Department in the Core Health Care Ltd. case 
H 
658 
.. 
JT. COMMNR. OF INCOME TAX, VALSAD, GUJARAT v. 
659 
M/S. UNITED PHOSPHOROUS LTD . 
.,__ 
--'< 
[Para 4] .(660-D] 
A 
. ""' . 
Dy. Commr. of Income Tax, Ahmedabad v. Mis. Core 
Health Care Ltd. (2008) 2 SCALE 327 - relied on. 
2. Regarding Question No.2, the High Court has 
relied upon the judgment of this Court in the case of s 
Mahendra Mills in which it has been held that the assessee 
-+. 
has an option to claim depreciation. However, s.34(1) of 
~ 
the Income-tax Act, 1961 has been omitted w.e.f. 1.4.88. 
Therefore, the matter is being remanded to the High Court, 
with the direction to consider: whether the assessee has C 
an option in law to claim partial depreciation in respect of 
block of assets. In the case of Mahendra Mills the concept 
of block of assets was not there. Substantial question of 
law did arise for determination before the High Court 
under s.260A of the 1961 Act, particularly when s.34(1) of 
the 1961 Act stood omitted w.e.f. 1.4.88. The High Court is D 
also requested to consider whether the judgment of this 
Court in the case of Mahendra Mills would apply to the 
assessment years under consideration. In this 
connection the High Court is also requested to take into 
account the scope of Explanation 5 to s. 32(1) of the E 
1961 Act, made by the Finance Act, 2001. [Para 5] 
(660-E-H, 661-A, B] 
Commissioner of Income-tax v. Mahendra Mills and Anr. 
(2000) 243 ITR 56 - referred to. 
CIVILAPPELLATE JURISDICTION: Civil Appeal No. 1183 
of 2008 
From the Judgment and Order dated 08.01.2002 of the 
High Court of Judicature of Gujarat atAhmedabad in Tax Appeal 
F 
No. 2 of 2002. 
G 
P. Vishwanatha Shetty, T. Srinivasa Murthy, GauravAgrawal 
and B.V. Balaram Das for the Appellant. 
Pardiwala, Jay Savla and Reena Bagga for the 
Respondent. 
H 
660 
A 
SUPREME COURT REPORTS 
[2008) 2 S.C.R. 
The Judgment of the Court was delivered by 
KAPADIA, J. 1. Delay condoned. 
· 2. Leave granted. 
3. In this civil appeal filed by the Department two questions 
8 
of law arise for determination which questions are as follow: 
c 
. o 
(1) 
Whether interest paid in respect of. borrowings on 
capital assets not put to use in the concerned 
financial year can be permitted as allowable 
deduction under Section 36(1 )(iii) of the- Income-tax 
Act, 1961? 
(2) 
VVhether respondent-assessee had an option in law 
to claim partial depreciation in respect of any block 
of assets . 
4. Our answer to the above-mentioned question No.(1) is 
squarely covered by our decision in favour~of the assessee and 
against the Department in the case of Dy ... Commr. of Income 
Tax, Ahmadabad v. Mis. Core Health Care Ltd. in Civil 
E Appeal· Nos.3952-55 of 2002. 
5. Regarding the question No.(2), quoted above, it may 
be noted that the High Court has relied upon the judgment of 
this Court in Commissioner of Income-tax v. Mahendra Mills 
& Anr. - (2000) 243 ITR
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