Interest paid on borrowings for business purposes is deductible as revenue expenditure, irrespective of whether the assets acquired with the borrowed funds have been put to use during the accounting year.

Venkataramaiah, J.—The question referred to us under s. 256(1) of the I.T. Act, 1961 (hereinafter referred to as the Act), in the above case reads :

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the money borrowed and utilised in the construction of the new factory building was for the purpose of the assessee's business and therefore, the interest payment on such borrowings is allowable as a revenue deduction ?"

2. The assessee claimed during the relevant assessment year the interest paid on amounts borrowed by it for purpose of putting up additional buildings. The ITO and the AAC held that the interest paid on such borrowings would not be deductible as revenue expenditure on the ground that the additional building constructed by the assessee had not yet been put to use. In the appeal filed by the assessee before the Tribunal, the orders passed by the authorities under the Act were set aside and the claim made by the assessee was allowed. Hence, this reference at the instance of the department.

3. It is not disputed that for the purpose of carrying on the business the assessee had constructed certain buildings and for the purpose of meeting the expenditure incurred for constructing such buildings, the assessee borrowed monies and on such borrowings paid interest. We are of the view that the Tribunal was right in holding that the interest paid was deductible as revenue expenditure irrespective of the fact that the buildings in question had not been actually put to use for carrying on business during the accounting year by the assessee. This view accords with the view taken by a Division Bench of this court, of which one of us was a member, in Ravi Machine Tools (P.) Ltd. Vs. Commissioner of Income Tax, ILR (1978) KAR 1527. The question referred to us is, therefore, answered in the affirmative against the department.