| Case ID |
035d99d1-68c0-4fb7-bf76-7110c97984e2 |
| Body |
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| Case Number |
D-2741 of 2016 |
| Decision Date |
Jan 01, 1992 |
| Hearing Date |
Jan 01, 1992 |
| Decision |
The Tribunal was justified in holding that the assessee's claim relating to payment of interest was to be allowed for the assessment year 1978-79. The holding company advanced money to the assessee in the normal course of business, and the liability to pay interest accrued at the end of the accounting year. The resolution passed by the board of directors after the close of the accounting year did not affect the already accrued liability. The method of accounting followed by the assessee was mercantile, and thus, the claim for deduction could not be disallowed on the ground of belated entries in books and passing of resolution. The Tribunal affirmed the conclusions of the Commissioner (Appeals), ruling in favor of the assessee. |
| Summary |
In the case of Commissioner of Income Tax v. Indian Metals & Carbide Ltd., the Orissa High Court addressed the issue of interest on borrowed capital under Section 36(1)(iii) of the Income-tax Act, 1961. The court examined the circumstances under which the assessee claimed a deduction for interest payable to its holding company for the assessment year 1978-79. The key issue revolved around whether the liability to pay interest had accrued despite the absence of an agreement or prior entries in the books of account. The court concluded that the holding company had advanced funds to the assessee in the ordinary course of business and that the liability to pay interest accrued at the end of the accounting year. It emphasized that the quantification of the liability through a resolution, passed after the accounting year, did not negate the already existing liability. This case highlights the importance of the mercantile accounting method and the implications of timely recognition of liabilities. Keywords such as interest deduction, Income-tax Act, accounting principles, and liability accrual are crucial for understanding this judgment. |
| Court |
Orissa High Court
|
| Entities Involved |
Indian Metals & Ferro Alloys Ltd.
|
| Judges |
A. PASAYAT,
S.K. MOHANTY
|
| Lawyers |
A.K. Ray,
B.K. Mahanti
|
| Petitioners |
Commissioner of Income tax
|
| Respondents |
Indian Metals & Carbide Ltd.
|
| Citations |
1992 SLD 1902,
(1992) 198 ITR 444
|
| Other Citations |
Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC)
|
| Laws Involved |
Income-tax Act, 1961
|
| Sections |
36(1)(iii)
|