Even though Section 43B of the Income-tax Act says that interest to banks and financial institutions would be allowed only on actual payment in case of those who follow the mercantile system of accounting but its rigor can always be relaxed by the Board for Industrial and Financial Rehabilitation (BIFR) under the special law for rehabilitation of sick companies.

The Madras High Court said so in Commissioner of Income-tax-I, Chennai v. Tube Investments of India Ltd. The respondent had taken over Press Metal Corporation Ltd pursuant to a scheme made by the BIFR.

Such schemes invariably contain sweeteners so as to entice healthy companies to take over sick companies. One of the sweeteners in the scheme was the interest liabilities of the sick company would be allowed as expenditure despite them not having been paid.

The BIFR could do so in exercise of its plenary powers to pass orders even if such orders have the effect of overriding others enactments including the income tax law.

(This article was published on February 3, 2013)
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