1. ' SALEEM AKHTAR, J.--The respondent is an Association of persons comprising of two persons who were promoters of Pakistan Progressive Cement Industries Limited which was incorporated on 18- 4-1984. During the assessm ent year 1965-66 the respondents claimed deduction under section 10
(2) (iii) of the Income Tax Act in respect of interest payable to M/s. Dalmia Cement Limited on the purchase price. This claim was disallowed by the Income Tax Officer and in appeal the Appellate Assistant Commissioner maintained the same order. The respondent then filed appeal before the Tribunal which was allowed and it was held that the interest paid by the respondent is an allowable expense under section 10 (2) (xvi) of the Income Tax Act. The Department has filed this application under section 66 (1) raising the following questions "(1) Whether on the facts and in the circumstances of the case the sum of Rs,12,79,356 being interest payable to Dalmia Cement Ltd. On purchase price could be deemed to have been incurred wholly and exclusively for the purpose of business under section 10 (2) (xvi) and could be allowed as under?
(2) Whether on the facts and in the circumstances of the case the sum of Rs,12,79,356 being interest payable to Dalmia Cement Limited on purchase price could be deemed to be allowable under section 1.0 (2) (iii) in the absence of any deduction of payment at source?
2. ' The applicant has not pressed question No,2.
3. ' The facts which emerge from the order of the. Tribunal are that by an agreement dated 24-7-1962 M/s. Dalmia Cement Limited agreed to sell its two cement factories at Shantinagar and Dandot to Eruch Maneckjee for Rs,2,33,66,678. A supplement agreement dated 20-11-1962 was also executed between the parties according to which till the sale-deed was finally completed the profits would belong to Maneckjee or his nominee. The factories were to be transferred to Maneckjee or his nominee. Eruch Maneckjee and Nauroze Maneckji floated Pakistan Progressive Cement Industries Limited and sale deed was executed in its favour. According to the agreements the sale price was to be paid in installments by making deliveries of cement in India. It was further provided that interest @ 6% PA. On weekly diminishing balance was to be paid to the seller. Consequently a total interest of Rs,12,79,356 was payable upto to 309-1964. According to arrangement an equivalent quantity of Cement was to be delivered in India. The respondent claimed this amount as a deduction under section 10 (2) (iii) against the profits earned during the period ending 30-9-1964.
4. ' The question for consideration is whether the interest which has been paid by the respondent on the sale consideration could be deducted as expenditure incurred wholly for the purpose of business. The interest has been paid on an amount from which the capital assets have been purchased. However as held by the Tribunal the interest is being paid in order to continue and run the business. In this regard reference has been made to a judgment of the Supreme Court of Pakistan namely Civil Appeal Nos.77-K to 80-K of 1979. The Commissioner of Income Tax, West Zone Karachi v. M/s. Khairpur Textile Mills Limited and others in which interest on unpaid balance of sale consideration was held to be an admissible deduction and the following observation was made: "Here even before the execution of the sale deed the appellant assessee was operating the business and entitled to appropriate the profits and bear the losses which operation continued after the execution of the sale-deed and the interest on the unpaid balance was claimed as revenue expenditure for the subsequent charge years. Such expenditure was not for the acquisition of any property but was so closely related on the business that it could be viewed as an integral part of the conduct of the business. It thus satisfied the test of being it within the four corners of section 10 (2) (xvi) as revenue expenditure paid out wholly and exclusively for the purpose of business."
5. This judgment of the Supreme Court fully concludes this controversy. Respectfully following the above dictum we answer the question in the, affirmative.