HERO CYCLES (P) LTD. vs COMMISSIONER OF INCOME TAX (CENTRAL)

The Supreme Court addressed the issue of deduction of interest under Section 36(1)(iii) of the Income Tax Act, 1961, concerning the assessment year 1988-1989. The Court held that the interest paid on borrowed sums is deductible as business expenditure if it is established that the borrowed funds were utilized for business purposes. The Court upheld the decision of the Commissioner of Income Tax (Appeals) that the entire interest claimed by the assessee was for business purposes, thus allowing the deduction of Rs.20,53,120/- as business expenditure.