CHALLAPALLI SUGAR LTD. vs THE COMMISSIONER OF INCOME TAX, A.P. HYDERABAD

The Supreme Court held that interest paid before the commencement of production on borrowed money for acquiring and installing machinery can be capitalized as part of the actual cost of the plant under Section 10 of the Indian Income-Tax Act, 1922. The court clarified that the definition of 'actual cost' should align with accepted accounting principles, which include all expenditures necessary to bring fixed assets into existence. Additionally, the court recognized the principle of capitalizing interest under Section 208(1) of the Companies Act, 1956, affirming that this applies regardless of whether the money is raised through share capital or loans.