D. A. MEHTA, J. ( 1 ) IN both these appeals the following common substantial question of law has been formulated for consideration at the time of admission of these appeals :"whether on the facts and circumstances of the case, the Appellate Tribunal has substantially erred in law in allowing as deduction, interest on borrowing made for acquisition as capital assets, though pertaining to period prior to commencement of production, under section 36 (1) (iii) of the Act ?"the brief facts for appreciating the controversy are : the assessee company, in which the public are substantially interested, is principally engaged in the business of manufacturing Intravenous Injection of two types - large volumes parental i. e. LVP and Sterile Water for Injection (small volumes parental i. e. SVP ). The company carries on its manufacturing activities at factory situated at village Rajpur, Taluka Kadi, District Mehsana, a centrally notified backward area. The assessment year is 1992-93 and the previous year is F. Y. 1991-92. The commercial production had commenced since February,1988 and the manufacturing capacity has been gradually increased from time to time. During the financial year ended on 31/3/1992, the company installed three more machines (in addition to existing three machines) for the production of LVP and SVP resulting in substantial increased in capacity of the manufactured products. The new machines which were purchased during the previous year are installed at the same location at Rajpur where the company had already carried on its manufacturing operations. ( 2 ) ON 31/12/1992 the company filed its return declaring nil income for assessment year 1992-93. A revised return was filed on 6/8/1993 declaring the loss of Rs. 1,11,68,518. 00. The reasons for filing the revised return were mentioned in the note attached to the return of income and the said note reads as under :"following expenses incurred during the previous year have not been charged to profit and loss account of the year but have been capitalised in the books of account of the company. @@@ rupees. a) interest 1,56,76,000 b) salaries and Wages 21,80,000 c) travelling expenses (including foreign travelling of rs. 8,90,000) 16,30,000 d) telephone, telex expenses 5,06,000 e) professional fees 3,50,000 f) lease Rental charges of vehicles. 5,58,000 g) factory Misc. expenses 7,20,000 h) recruitment expenses. 4,64,000 i) expenses incurred on trial runs of machineries including cost of raw materials, fuel, power,wages, etc. a) interest 1,56,76,000 b) salaries and Wages 21,80,000 c) travelling expenses (including foreign travelling of rs. 8,90,000) 16,30,000 d) telephone, telex expenses 5,06,000 e) professional fees 3,50,000 f) lease Rental charges of vehicles. 5,58,000 g) factory Misc. expenses 7,20,000 h) recruitment expenses. 4,64,000 i) expenses incurred on trial runs of machineries including cost of raw materials, fuel, power,wages, etc. 14,14,000 j) insurance 3,61,459 ___________ 2,38,59,459 Out of these, following expenses are directly related to the acquisition/installation of the capital assets : foreign Travelling 8,90,000 professional fees 3,50,000 trial Runs expenses 14,14,000 26,54,000 -OTHER expenses aggregating to Rs. 2,12,05,459. 00 are of revenue nature and are fully deductible under the provisions of Income-Tax Act,1961. These expenses are of revenue nature and are incurred wholly and exclusively for the purposes of business. These are fully deductible under the provisions of Income-tax Act,1961 and hence, the same are claimed in full. It is submitted that the same be allowed in full. Subsequently, on reversal of capitalised expenditure, the depreciation has been claimed on the basis of revised cost as per attached computation of Depreciation. ORIGINAL return of income is revised to the above extent. " ( 3 ) THE Assessing Officer disallowed the amount of Rs. 2,12,05,459. 00 out of the new project expenses which was claimed as revenue expenses as per note attached with the revised return reproduced hereinbefore. The aforesaid action of the Assessing Officer was confirmed in appeal and the assessee company challenged the appellate order before the Income Tax Appellate Tribunal, Ahmedabad Bench. This appeal was registered as I. T. A. No. 444/ahd/1997. Tax Appeal No. 449 of 2000 arises out of this appeal. ( 4 ) IN so far as certain other issues which were decided in favour of the assessee by the C. I. T. (A) the revenue went in appeal before the I. T. A. T. and the said appeal was registered as I. T. A. No. 529/ahd/1997. Tax Appeal No. 450 of 2000 arises out of this appeal of the revenue. As the issue regarding allowability of interest was not there in Revenues appeal before the Tribunal, there cannot be any decision by the I. T. A. T. on the same and hence in Tax Appeal No. 450 of 2000 the question has been erroneously proposed by revenue and formulated. Tax Appeal No. 450 of 2000 is thus infructuous and is therefore dismissed as such. Tax Appeal No. 450 of 2000 is thus infructuous and is therefore dismissed as such. ( 5 ) THE claim of sum of Rs. 1,56,76,000. 00 being interest paid towards borrowings made for the purpose of acquiring new machineries is the only item in dispute before us. Before adverting to the finding of the Tribunal we may briefly recapitulate the stand of the revenue as appearing from the order of Assessing Officer and the Commissioner (Appeals ). (i) That the interest expenses are pertaining to setting up of three new machines which are installed for enhancement of existing LVP production and to start a new production line of SVP and that such expenditure had been capitalised by the Assessing Company along with cost of the new machinery. (ii) That such capitalisation by the assessee company of preoperative expenses was rightly made and though the treatment of a particular expenditure in the Books of Accounts, is neither determinative of the nature of expenditure nor conclusive one way or the other, yet the same cannot be regarded as irrelevant. (iii) That the action of capitalisation of interest expenditure is in consonance with the ratio laid down by the Supreme Court in the case of Chellapalli Sugar Ltd. and Explanation 8 below section 43 (1) of the Income Tax Act,1961. The Commissioner (Appeals) upheld the reasoning adopted by the Assessing Officer and concluded the issue by stating that once the assessee had capitalised the interest in its Books of Accounts it ceases to be the interest and there is no question of making a claim for deduction or granting the same. ( 6 ) WHEN the matter was originally heard by the Tribunal a difference of opinion arose between the learned Accountant Member and the learned Judicial Member and the following points were referred for the opinion of the third Member. "whether in the facts and circumstances of the case, the view of the Accountant Member that the interest payment of Rs. 1,56,76,000. 00 in relation to the money invested in the expansion of the manufacturing units of the assessee for LVP and SVP by installing three addl. machines was allowable as a deduction u/s. 36 (1) (iii) is correct or the view of the ld. 1,56,76,000. 00 in relation to the money invested in the expansion of the manufacturing units of the assessee for LVP and SVP by installing three addl. machines was allowable as a deduction u/s. 36 (1) (iii) is correct or the view of the ld. J. M. that the interest has to be capitalised as was initially done by the assessee in its books of accounts, but was subsequently claimed as a revenue expenditure in the revised return filed before the Departmental authorities, is justified. ""whether in the facts and in the circumstances of the case, considering the different views taken by the different Benches of the Tribunal i. e. 53 ITD 575, 62 ITD 233 (Pune Bench) and 65 ITD 169 (Calcutta Bench) and the decision of Supreme Court and High Court discussed in the orders, the interest paid on borrowed capital which has been capitalised in the books of a/c as part of actual cost of the new machineries of the new unit of the assessee company can be claimed as deduction u/s. 36 (1) (iii) of the I. T. Act. "the learned third Member concurred with the view expressed by the learned Accountant Member and thus by majority opinion the Tribunal has come to a conclusion that interest payment of Rs. 1,56,76,000. 00 was allowable as deduction under section 36 (1) (iii) of the Act. It is this finding which we are called upon to adjudicate. ( 7 ) THE undisputed facts recorded by the Tribunal are that three additional machines were installed by the assessee company for manufacture of similar items and that such installation was not for the purpose of starting any new business, but was for the purpose of a new unit of the existing business, which forms part of the same business. Therefore, this is not a case where a new business was being set up or commenced. In fact, the learned Counsel for the Revenue did not dispute this position, but his say was that the interest was paid in relation to a period prior to the point of time when the assets were put to use viz. though the assessee company carried on the business yet the interest in relation to the three new machines was required to be capitalised, and was rightly capitalised in the Books of Accounts by the assessee company, as the asset had not been put to use. though the assessee company carried on the business yet the interest in relation to the three new machines was required to be capitalised, and was rightly capitalised in the Books of Accounts by the assessee company, as the asset had not been put to use. For this proposition strong reliance was placed on "explanation 8 under section 43 (1) of the Act". ( 8 ) THE main plank of Revenues case was that as per the accounting principles and the accounting standards prescribed by the Institute of Chartered Accountants of India and the ratio of the Supreme Court in the case of Challapalli Sugars Ltd. Vs. Commissioner of Income Tax, reported in 98 I. T. R. 167, the expenditure incurred by way of interest paid for borrowing had to be capitalised and was rightly capitalised by the assessee company in its Books of Accounts, and in light of the said position it was not permissible to take a different stand at the stage of computation of total income for the purpose of the Income Tax Act. Reliance was placed on Explanation 8, Sec. 43 (1) in support of the aforesaid proposition and it was submitted that the entire legal position prior to insertion of the said Explanation was now no longer applicable and such interest cannot be now claimed or allowed as deduction. It was submitted that the aspect of commencement of business, namely the business had commenced or not, was not relevant for the purpose of deciding the issue. That interest paid after business has commenced but where the asset has not been put to use has to be capitalised. A further submission was made that while interpreting provisions of Explanation 8 under section 43 (1) of the Act, a purposive interpretation should be adopted and that sec. 36 (1) (iii) of the Act was a general provision which would give way to a special provision namely Explanation 8 to section 43 (1) of the Act. Various decisions were cited in support of these proposals. We shall advert to the same little later. ( 9 ) THE relevant provisions with which we are concerned directly are section 36 (1) (iii) of the Act and Explanation 8 under section 43 (1) of the Act, which read as under :"other deductions. 36. Various decisions were cited in support of these proposals. We shall advert to the same little later. ( 9 ) THE relevant provisions with which we are concerned directly are section 36 (1) (iii) of the Act and Explanation 8 under section 43 (1) of the Act, which read as under :"other deductions. 36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28-". xxx xxx xxx xxx (III) the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession. "xxx xxx xxx xxxdefinitions of certain terms relevant to income from profits and gains of business or profession. 43. In Sections 28 to 41 and in this section, unless the context otherwise requires - (1) "actual cost" means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority :""[explanation 8.- For the removal of doubts, it is hereby declared that where any amount is paid or is payable as interest in connection with the acquisition of an asset, so much of such amount as is relatable to any period after such asset is first put to use shall not be included, and shall be deemed never to have been included, in the actual cost of such asset. ]" ( 10 ) THE charge of income tax has been prescribed in sec. 4 of the Act, wherein it is laid down that income tax at the prescribed rate shall be charged for assessment year in respect of the total income of the previous year. The scope of total income has been laid down in Sec. 5 of the Act. Section 28 lays down as to what income shall be chargeable to income-tax under the head "profits and gains of business or profession". Section 29 of the Act specifies as to how the income referred to in section 28 is to be computed and for this purpose it is stated that provisions of sections 30 to 43d of the Act will have to be taken into consideration. Section 29 of the Act specifies as to how the income referred to in section 28 is to be computed and for this purpose it is stated that provisions of sections 30 to 43d of the Act will have to be taken into consideration. Section 145 of the Act lays down that income chargeable under the head "profits and gains of business or profession" shall be computed in accordance with the system of accounting regularly employed by the assessee. Therefore, the scheme of the Act as it operates and the settled legal position in relation to the scope and ambit of section 5 vis-a-vis section 145 of the Act is that an income which has neither accrued nor been received within the meaning of section 5 of the Act cannot be brought to charge even though an entry might have been made in the books treating such receipt as income, because section 145 determines the mode of computing taxable income and does not affect the range/scope or ambit of taxable income. Same is the position in relation to allowability of an item of expenditure : Kedarnath Jute Mfg. Co. Ltd. v. Commissioner of Income-Tax (Central) Calcutta reported in 82 I. T. R. 363 (SC), Commissioner of Income-Tax, Gujarat-II v. Gujarat Mineral Development Corporation, reported in 132 I. T. R. 377 (Guj.) ( 11 ) IN so far as applicability of section 36 (1) (iii) of the Act is concerned, the said provision is absolutely clear. It provides that the amount of interest paid in respect of capital borrowed for the purposes of the business shall be allowed in computing income referred in section 28 of the Act. It is settled legal position that interest paid/payable has to be in respect of capital borrowed for the purposes of business; the section nowhere stipulates that such borrowing has to be only on revenue account. In fact, there is no dispute and this position was conceded by learned Counsel for the Revenue that such interest payment may be relatable to borrowings for the purpose of acquisition of capital assets. The distinction sought to be drawn by the revenue that eventhough the business might have commenced such interest could be claimed as revenue deduction only provided the asset in question has been put to use does not flow from the plain language of the provision. The distinction sought to be drawn by the revenue that eventhough the business might have commenced such interest could be claimed as revenue deduction only provided the asset in question has been put to use does not flow from the plain language of the provision. The only requirement is that the interest must have been incurred for the purpose of capital borrowings made for the purpose of business. In so far as the aspect of commencement or otherwise is concerned, the same need not detain us because a question of deduction from the income referred to in section 28 would arise only in case of business which has commenced. ( 12 ) THERE is an inherent indication in the Act that any expenditure which is in the nature of capital expenditure would not be allowable as a deduction while computing the income chargeable under the head "profits and gains of business or profession" as laid down in section 37 of the Act; but in the same section the portion in parenthesis lays down that such expenditure has to be not being expenditure of the nature described in sections 30 to 36. Therefore, there is a specific provision dealing with interest paid/payable in respect of the borrowings incurred for the purposes of business and hence the general provision viz. section 37 of the Act cannot come into play. Therefore, whether the interest is paid for a borrowing which is utilised for acquisition of capital asset or which is utilised for a revenue purpose loses its distinction and if that be so the stand adopted by the revenue that in respect of interest which is capitalised, after commencement of business but before an asset is first put to use cannot be allowed as a revenue deduction under section 36 (1) (iii) of the Act is against the plain language of the provisions of the Act. ( 13 ) THE provisions of section 35d of the Act which deal with amortisation of certain preliminary expenses are another pointer to the legislative intent. Sub-section (1) of section 35d lays down that in case of an assessee, who incurs certain expenditure specified in sub-section (2) of the said section after the prescribed date such expenditure shall be allowed to the extent of 1/10th for each of the ten successive years beginning with the previous year in which the business commences. Sub-section (1) of section 35d lays down that in case of an assessee, who incurs certain expenditure specified in sub-section (2) of the said section after the prescribed date such expenditure shall be allowed to the extent of 1/10th for each of the ten successive years beginning with the previous year in which the business commences. When one looks at the various items of expenditure specified in sub-section (2) of section 35d it is apparent that all such expenditure is primarily capital in nature. However, clause (d) of sub-section (2) lays down "such other items of expenditure (not being expenditure eligible for any allowance or deduction under any other provision of this Act) as may be prescribed" - and as we have already seen interest in relation to capital borrowed for the purposes of business is an allowable deduction under section 36 (1) (iii) of the Act. Therefore, where the legislature wanted to restrict allowance/deduction of a particular type of expenditure a specific provision has been incorporated in the Act, as for example, provisions of sections 37 and 35d of the Act. ( 14 ) THE emphasis on insertion of Explanation 8 below section 43 (1) of the Act is to say the least, misplaced. The scope of both the provisions is different, they operate in separate fields and though both are relatable to computing income u/s. 28 yet the nature of deductions are entirely distinct from each other - as distinct as the north pole and south pole are. The concept and the meaning of "actual cost" which is the definition laid down in section 43 (1) of the Act is for a limited purpose, viz. at the point of time when deduction is to be granted for the purpose of wear and tear (Sec. 32) or an incentive for the purpose of setting up a specified industry (Secs. 32a and 33 ). The figure of actual cost has to be computed and arrived at for the purpose of taking it as a base from which a certain percentage as stipulated has to be deducted; the said figure itself is not deductible (except in certain situations) The term "cost" and "actual cost" for the purpose of Income Tax Act are different and have a distinct meaning of their own and are applicable in different situations. Opening portion of section 43 (1) reads "in sections 28 to 41 and this section, unless the context otherwise requires". In case the interpretation canvassed by revenue is accepted the phrase "unless the context otherwise requires" becomes redundant, because the definition which has to be invoked and applied in the context of a particular provision loses its significance if sought to be applied to provisions where there is no scope for such application. The term "actual cost" is applicable only in relation to an asset as against the phrase "capital borrowed" used in clause (iii) of section 36 (1) of the Act. The term "capital borrowed" in the said provision is of a much wider import than phrase "actual cost". ( 15 ) WE have already extracted Explanation 8 hereinbefore. It only lays down that where an amount is paid/payable as interest in connection with acquisition of asset, so much of such amount as is relatable to any period after such asset is first put to use,shall not be included in the actual cost of such asset. The scope and ambit of this Explanation, on a plain reading is restricted to a situation where after asset is first put to use the interest which is paid/payable would never form a part of actual cost. The submission of the revenue to the effect that by virtue of Explanation 8 any interest which is paid for a period prior to an asset first being put to use has always necessarily to be capitalised does not flow from a plain reading. Even if one accepts the revenues plea that purposive interpretation should be adopted, the said interpretation cannot be said to arise from the wordings of Explanation 8. All that the legislature has provided is that in a situation where an asset is acquired out of borrowed funds interest relatable to such borrowings, if it is paid or payable after the asset has been first put to use shall not form part of actual cost. We nowhere get any indication in the said provision to the contrary as the revenue asks us to believe. ( 16 ) THE aforesaid Explanation 8 nowhere provides that interest pertaining to a period prior to an asset being first put to use will not be allowed as a deduction u/s. 36 (1) (iii) of the Act. We nowhere get any indication in the said provision to the contrary as the revenue asks us to believe. ( 16 ) THE aforesaid Explanation 8 nowhere provides that interest pertaining to a period prior to an asset being first put to use will not be allowed as a deduction u/s. 36 (1) (iii) of the Act. Even if we assume for the sake of the argument the submission of the revenue that interest paid/payable for the borrowings before an asset is first put to use is required to be capitalised, there is nothing in Explanation 8 so as to disentitle an assessee from making a claim of deduction u/s. 36 (1) (iii) of the Act. As we have already seen, the settled legal position is that interest relatable to an acquisition of capital asset would also be a permissible deduction u/s. 36 (1) (iii) of the Act, the only requirement being that the borrowing must be for the purposes of business. ( 17 ) OUR attention was drawn to Notes on Clauses accompanying the Finance Bill,1986 by which Explanation 8 to clause (1) of section 43 of the Act was inserted. The same is reproduced hereunder :"clause 9 seeks to insert a new Explanation 8 to clause (1) of section 43 of the Income-tax Act relating to the definition of actual cost. UNDER the existing provisions of clause (1) of that section, "actual cost" means the actual cost of the asset to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority. The proposed amendment seeks to clarify that any amount paid or payable as interest in connection with the acquisition of asset and relatable to a period after the asset is first put to use shall not form part and shall be deemed never to have formed part of the actual cost of the asset. THIS amendment will take effect retrospectively from 1st April,1974, and will, accordingly, apply in relation to the assessment year 1974-75 and subsequent years. " (158 I. T. R. [st. ]88)17. 1 in the same volume in the memorandum explaining provisions in Finance Bill 1986 at page 116, it is stated thus :"measures FOR COMBATING TAX AVOIDANCE AND EVASION. actual Cost for the purposes of depreciation, investment allowance, etc. " (158 I. T. R. [st. ]88)17. 1 in the same volume in the memorandum explaining provisions in Finance Bill 1986 at page 116, it is stated thus :"measures FOR COMBATING TAX AVOIDANCE AND EVASION. actual Cost for the purposes of depreciation, investment allowance, etc. UNDER the existing provisions of section 43 (1) of the Income-tax Act, actual cost means the actual cost of the assets to the assessee reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority. IT has been found that certain taxpayers (backed by some court decisions, the first of which was rendered on May 13,1974) are resorting to a major change in accounting practice by capitalising the interest paid or payable in connection with the acquisition of an asset relatable to the period after such asset is first put to use. This capitalisation implies inclusion of such interest in the "actual cost" of the asset for the purposes of claiming depreciation, investment allowance, etc. , under the Income-tax Act. AS this was never the legislative intent nor does it conform to accepted accounting practises, with a view to counteracting tax avoidance through this method and placing the matter beyond doubt, the Bill seeks to provide that any amount paid or payable as interest in connection with the acquisition of an asset and relatable to a period after the asset is first put to use shall not form part and shall be deemed never to have formed part of the actual cost of the asset. THIS amendment will take effect retrospectively from 1st April,1974 and will, accordingly, apply in relation to the assessment year 1974-75 and subsequent years. (Clause 9)". (Emphasis supplied ). AS can be seen it only states that new Explanation 8 is inserted in relation to the definition of "actual cost" and pertaining to interest paid or payable for acquisition of asset and relatable to a period after the asset is first put to use. 17. 2. ON behalf of the revenue, our attention was also drawn to circular No. 461 dated 9/7/1986. 17. 2. ON behalf of the revenue, our attention was also drawn to circular No. 461 dated 9/7/1986. The said Circular deals with the explanatory notes on the provisions relating to direct taxes in the Finance Act,1986 : at page 30 (St.) of 161 I. T. R. , it is laid down as under :" (IX) Modification in the definition of "actual Cost" for the purposes of depreciation, investment allowance, etc. 18. 1. UNDER the existing provisions of section 43 (1) of the Income-tax Act, "actual cost" means the actual cost of the assets to the assessee reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority. It was found that certain taxpayers supported by some court decisions had resorted to a major change in accounting practice by capitalising the interest paid or payable in connection with acquisition of an asset relatable to the period after such asset is first put to use. This capitalisation implies inclusion of interest in the actual cost of the asset for the purposes of claiming depreciation, investment allowance, etc. , under the Income-tax Act. 18. 2. It is an accepted accounting principle that where an asset is acquired out of borrowed funds, the interest paid or payable on such funds constitutes the cost of borrowing and not the cost of the asset acquired with those funds. It is for this reason that as per the clear guidelines issued by the Institute of Chartered Accountants of India, the interest on moneys which are specifically borrowed for the purchase of a fixed asset may be capitalised only relating to the period prior to the asset coming into production, i. e. , relating to the erection stage of the asset. However, once the production starts, no interest on borrowings for the purchase of such assets should be capitalised. In spite of these clear guidelines, as also the consistent view of the Department in this matter, some taxpayers had adopted a contrary stance and had capitalised such interest. The first decision in favour of this stance had been rendered on May 13,1974, in the case of CIT v. J. K. Cotton Spinning and Weaving Mills Ltd. ([1975])98 ITR 153. This decision as well as the subsequent decisions were contrary to the legislative intent. The first decision in favour of this stance had been rendered on May 13,1974, in the case of CIT v. J. K. Cotton Spinning and Weaving Mills Ltd. ([1975])98 ITR 153. This decision as well as the subsequent decisions were contrary to the legislative intent. Hence, in order to enable the Government to collect the tax legitimately due to it for the earlier years, a clarificatory amendment to this provision has been made retrospectively from 1st April,1974 and will, accordingly, apply in relation to the assessment year 1974-75 and subsequent years. [section 9 of the Finance Act]" (Emphasis supplied ). ( 18 ) THEREFORE, as can be seen Explanation 8 was inserted to counter act tax avoidance by way of claiming depreciation, investment allowance etc. , on a larger amount of actual cost. Neither in the Notes on Clauses nor in the Memorandum explaining provisions in the Finance Bill we find any indication in support of the revenues stand that in a converse situation interest has to be capitalised and further that such interest cannot be claimed as deduction under section 36 (1) (iii) of the Act. In fact, there is no mention about deductibility or otherwise under section 36 (1) (iii) of the Act. ( 19 ) THE accepted accounting principle is that where an asset is acquired out of borrowed funds interest paid or payable on such funds constituted the cost of such borrowing and not the cost of the asset acquired with those funds. It is in light of this principle that the Institute of Chartered Accountants of India has stated in its guidelines that such interest may be capitalised. (Emphasis supplied ). Same is the ratio of the Supreme Court decision in the case of Challapalli Sugars Ltd. (Supra ). The revenue wants us to hold that what is permissible viz. , capitalisation of interest, should be read to mean as being compulsory. The same is not warranted by a plain reading of the relevant provisions. ( 20 ) MR. JOSHI, learned Counsel for Revenue read extensively from 120 I. T. R 211 (Madras) in the case of Sivakami Mills Ltd. Vs. Commissioner of Income-Tax, Madras and 137 I. T. R. 389 (Gujarat) in the case of Commissioner of Income-Tax, Gujarat Vs. Vallabh Glass Works Ltd. , in support of the various propositions canvassed by him. ( 20 ) MR. JOSHI, learned Counsel for Revenue read extensively from 120 I. T. R 211 (Madras) in the case of Sivakami Mills Ltd. Vs. Commissioner of Income-Tax, Madras and 137 I. T. R. 389 (Gujarat) in the case of Commissioner of Income-Tax, Gujarat Vs. Vallabh Glass Works Ltd. , in support of the various propositions canvassed by him. The said decisions need not be dealt with in detail as both these decisions were primarily concerned with controversy whether the payment of bank guarantee commission was capital or revenue in nature and allowable as deduction under section 37 of the Act. In none of the decisions the Court was called upon to decide about the allowability of interest payment under section 36 (1) (iii) of the Act and hence, the observations made in different context cannot be pressed into service and cannot come to the aid of the revenue in so far as the present controversy is concerned. Similarly, the reliance on 95 I. T. R. 284 (Mad.) in the case of Commissioner of Income-Tax, Madras II v L. G. Balakrishnan and Bros. (P) Ltd. , 98 I. T. R. 167 Challapalli Sugar Ltd. v Commissioner of Income-Tax, A. P. (Supra) and 104 I. T. R. 581 (Gujarat) in the case of Commissioner of Income-Tax, Gujarat v Tensile Steel Ltd. also does not carry the case of revenue any further, in as much as the said decisions were all dealing with the controversy as to computation of "actual cost" for the purposes or depreciation and/or development rebate. We have already made it clear that the definition section has to be read and confined to the context of the requirement of a particular provision and cannot be extended beyond its context. . ( 21 ) MR. JOSHI thereafter referred to 247 I. T. R. 314 (Gujarat) in the case of Commissioner of Income-Tax Vs. Kaira District Cooperative Milk Producers Union Ltd. The said decision will have to be read in the context of the controversy which was there before the Court whereby the Court was called upon to determine what would be the cost of stock in trade i. e. raw material received by the assessee free of charge and whether the same was deductible while computing total income. The question posed before the Court was :" (3) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the cost price of milk powder and soya flour received by the Union from the UNICEF free of charge is not deductible in the computation of the total income ?"the observations at pages 323 and 324 of the said decision will have to be read in light of the factual matrix and the question posed before the Court. In the present case, there is no controversy between the parties as to computation of cost, and hence, the said decision does not shed any light for our purpose. Moreover, we have already delineated the distinction between the concept of "cost" and "actual cost". ( 22 ) AN alternative contention was raised on behalf of the revenue that in case the assessee has an option - to capitalise or not to capitalise interest paid/payable relatable to borrowing made, even then the deductibility of such interest will have to be restricted. It was submitted that in a case where business has commenced but the asset has not been put to use, a deduction shall not be available under section 36 (1) (iii) of the Act, even if the assessee has capitalised the interest in its Books of Accounts. That, in a situation where the business has commenced, after the asset has been first put to use the deduction under section 36 (1) (iii) would be available even if the assessee has capitalised the interest in its Books of Account. We have already seen the provisions of section 36 (1) (iii) of the Act and they do not make any distinction between the borrowing utilised to acquire capital asset or otherwise. In fact, the phrase used in the said provision is "capital borrowed". Therefore, the distinction about the interest having been capitalised or not loses its significance, in as much as if the capital is borrowed for the purposes of business interest is allowable as deductible item of expenditure under section 36 (1) (iii) while computing income under section 28 of the Act. There is no other prescription in the provisions and we are not inclined to read any such prescription as proposed by the revenue. There is no other prescription in the provisions and we are not inclined to read any such prescription as proposed by the revenue. There is no cut-off point : before or after asset being put to use : provided in Sec. 36 (1) (iii) and we cannot read the same. ( 23 ) IN so far as the applicability of provisions 36 (1) (iii) of the Act is concerned - as to when and in which circumstances the said section could be pressed into service, the controversy is no longer res integra. This Court in the case of Commissioner of Income-Tax, Gujarat II v Alembic Glass Industries Ltd. , 103 I. T. R. 715 was called upon to decide the issue in almost similar set of facts. On behalf of the revenue great stress was laid on the decision of Supreme Court in the case of Challapalli Sugar Ltd. , (Supra) to canvass that earlier decision of Bombay High Court in the case of Calico Dyeing and Printing Works (2)[1958] 34 I. T. R. 265 (Bom.) and Supreme Court in the case of India Cements Ltd. [1966] 60 I. T. R. 52 (SC) required relook and in that context this is what our Court observed :the question which still remains to be considered is whether, inspite of the above referred two decisions, any difference in the legal situation is made by the recent decision of the Supreme Court in Challapalli Sugar Ltd. v. Commissioner of Income-tax. "thereafter, the Court analysed the decisions of Bombay High Court in case of Calico Dyeing and Printing Works and of the Supreme Court in India Cements Ltd. , and held as follows :"the decision of the Supreme Court in Challapalli Sugars Ltd. was given with reference to the borrowings which could not be treated as made for the purposes of business, as no business had yet been commenced. Thus, there is no incompatibility between these decisions. The Supreme Court itself has distinguished its earlier decision in India Cements Ltd. in the following terms in Challapalli Sugar Ltd. :this case too is of no assistance to the revenue. The appellant-company in that case at the time it raised the loan was a running concern. Unlike the assessees in the present appeals, the loan raised by the appellant company in the cited case was not before the commencement of production but at a later stage. The appellant-company in that case at the time it raised the loan was a running concern. Unlike the assessees in the present appeals, the loan raised by the appellant company in the cited case was not before the commencement of production but at a later stage. The question of including the interest paid on the loan before the commencement of business in the actual cost of the plant did not arise in that case. IN view of this, we conclude that the decisions of the Bombay High Court in Calico Dyeing and Printing Works and of the Supreme Court in India Cements Ltd. , hold the field with equal force, even after the decision in Challapalli Sugar Ltd. We can state the ratio of all these three decisions as under : (1) Where a borrowing is made for the purposes of a business, the interest paid on such a borrowing becomes eligible to deduction contemplated by section 10 (2) (iii) of the Act of 1922 or section 36 (1) (iii) of the Act of 1961. (2) This would be so, even if the capital is invested in order to acquire a revenue asset or a capital asset, because the act of borrowing capital is distinct from the act of investment of that capital to acquire an asset. (3) However, the business for which an asset of enduring nature is purchased with the borrowed capital should not be separate or distinct from the business for the purposes of which the capital is borrowed if deduction under section 10 (2) (iii) is to be allowed. (4) If there is no existing business with reference to which the capital is borrowed and the borrowed capital is invested to purchase a new asset of enduring nature, then the interest paid on such borrowing till the asset so purchased goes into production, increases the cost of the installation of the said asset, and hence should be treated as capital expenditure not covered by section 10 (2) (iii) of the Act of 1922 or section 36 (1) (iii) of the Act of 1961. " ( 24 ) RECENTLY the Supreme Court of India in the case of Commissioner of Income-Tax v. Associated Fibre and Rubber Industries (P) Ltd. reported in 236 I. T. R. 471, held that -"we find that the reasoning of the Tribunal is correct. " ( 24 ) RECENTLY the Supreme Court of India in the case of Commissioner of Income-Tax v. Associated Fibre and Rubber Industries (P) Ltd. reported in 236 I. T. R. 471, held that -"we find that the reasoning of the Tribunal is correct. Even though the machinery has not been actually used in the business at the time when the assessment was made, the same had been treated as a business asset and it was purchased only for the purposes of the business. In the circumstances, the interest paid on the amount borrowed for purchase of such machinery is certainly a deductible amount. Consequently, the view taken by the Tribunal is correct. "in relation to this decision Mr. Joshi on behalf of the revenue was at great pains to submit that this decision should not be read as having laid down any proposition in relation to section 36 (1) (iii) of the Act as well as impact of Explanation 8 under section 43 (1) of the Act, because in the entire decision, according to him there was no mention about any provision. His submission was that the decision should be treated as sub silentio. This contention cannot be upheld for the simple reason that can be seen from the facts as were before the Apex Court. The assessee therein had claimed the interest paid on the amount borrowed for purchase of machinery as a deductible item of expenditure. The Income-Tax Officer had noted that the assessee had included a note in the schedule of fixed assets appended to its balancesheet as on 31/3/1973 that depreciation had been claimed for unused rubberised machinery valued at Rs. 4,80,000. 00. Therefore, the Income-Tax Officer held that such machinery had not been used for the business of the assessee, the claim for deduction of interest paid in all the three assessment years was not allowable. The Tribunal found as a matter of fact that the machinery being business asset interest paid on loan borrowed for purchase of such machinery would certainly be an allowable deduction. The Tribunal found as a matter of fact that the machinery being business asset interest paid on loan borrowed for purchase of such machinery would certainly be an allowable deduction. It was in this context that the following question of law arose before the Apex Court :"whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in holding that the interest paid by the assessee on loans taken from the bank for the purchase of machinery, which was never used in the assessees business, is an allowable deduction in computing the total income of the assessee for the assessment years 1972-73 and 1973-74?"it is further found that similar application was also filed for 1974-75. THEREFORE, as can be seen in the facts which were there before the Apex Court, undisputedly the assessee had borrowed loans from the bank for purchase of machinery, such machinery had not been used in assessees business for the years under consideration, the assessee had paid interest on such loans, no depreciation was claimed on such machinery and claimed deduction of interest paid. The machinery was treated as a business asset, it was purchased only for the purposes of business and hence interest paid on the borrowing was held to be a deductible amount. Hence, it is clear that : (i) business had commenced, (ii) machinery had not been put to use, (iii) interest was paid on borrowing made for purchase of such machinery, (iv) interest was held to be allowable deduction. Apparently, the expenditure in question is for the acquisition of the capital asset and therefore, being capital in nature the provisions of section 37 could not be pressed into service and thus the only provision under which the assessee could claim deduction and can be allowed is section 36 (1) (iii) of the Act. Thus, revenues contention that provisions of section 36 (1) (iii) have not been taken into consideration is not borne out from the facts as were there before the Apex Court. Thus, revenues contention that provisions of section 36 (1) (iii) have not been taken into consideration is not borne out from the facts as were there before the Apex Court. Not only that, the situation wherein revenue wants that Explanation 8 of section 43 (1) of the Act would override the provisions of section 31 (1) (iii) of the Act was also present before the Apex Court, in as much as in running business though the machinery had been acquired and interest paid on borrowing for such acquisition , the machinery had not been put to use. Even then, in respect of this situation the Supreme Court has held that there was no error in the reasoning of the Tribunal in the case before it. Moreover, the third year before the Supreme Court was A. Y. 1974-75 when Explanation 8 below Section 43 (1) of the Act was on Statute. ( 25 ) MR. JOSHI, learned Counsel for the revenue vehemently contended that the decision of the Apex Court as well as this Court in relation to allowability under section 36 (1) (iii) of the Act did not hold the field after insertion of Explanation 8 under section 43 (1) of the Act. However, as we have already discussed hereinbefore the said Explanation 8 does not in any way curtail the scope of section 36 (1) (iii) of the Act. As laid down by the Apex Court in the case of Ambika Prasad Mishra v. State of U. P and others reported in (1980) 3 SCC 719 :"every new discovery or argumentative novelty cannot undo or compel reconsideration of a binding precedent". xxx xxx xxx"a decision does not lose its authority merely because it was badly argued, inadequately considered and fallaciously reasoned. . . "similarly in the case of M/s. Keshoram and Co. and others etc. v. Union of India and others , reported in (1989) 3 SCC 151 , it is stated by the Supreme Court thus :-"the binding effect of a decision of this Court does not depend upon whether a particular argument was considered or not, provided the point with reference to which the argument is advanced subsequently was actually decided in the earlier decision. . . . . . . "in such a situation we find that all the contentions raised on behalf of the revenue stand answered by the two decisions - in case of Commissioner of Income-Tax, Gujarat II v. Alembic Glass Industries Ltd. reported in 103 I. T. R. 715 (Supra) and in case of Commissioner of Income-Tax v. Associated Fibre and Rubber Industries (P.) Ltd. , reported in 236 I. T. R. 471 (Supra ). ( 26 ) THE contention, that the assessee would derive double benefit if it was allowed to capitalise the interest paid in its books and claim the same as a deduction in its return of income, is required to be stated to be rejected. We have demonstrated how both the provisions operate in different situations in separate fields : Also, what is more material, the assessee has in revised return given up its claim for depreciation on larger amount of "actual cost. " ( 27 ) WE, therefore, dismiss these appeals and hold that there was no error in law committed by the Tribunal in allowing as deduction, interest on borrowing for acquisition of capital asset, though pertaining to a period prior to commencement of production under section 36 (1) (iii) of the Act. There shall be no order as to costs. .