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2011 (6) TMI 912 - HC - Income TaxDeduction u/s 36(1)(iii) - Interest on Loan taken for Investment - The assessee took a loan and invested it in subsidiary company, undisputedly, as an investment - Assessee claimed a deduction u/s 36(1)(iii) in respect of the interest payable by it to the bank - AO held that since the investment is out of borrowed funds for business, the proportionate interest is to be disallowed. HELD THAT:- ITAT found that the assessee had invested the amount in question in subsidiary company, for the acquisition of its shares i.e. to have a control over majority shares but not to earn dividend on interest. Before ITAT, it was not disputed that such an investment is an integral part of the business. In these circumstances, ITAT, therefore, came to the conclusion that the assessee is entitled to the amount as deduction under Section 36(1)(iii). Assessee's submission that amount paid to subsidiary company must be treated as loan is not acceptable since the assessee has nowhere stated that the amount has been paid to subsidiary company must be treated as loan neither there is anything to support the contention that the assessee is now claiming that the amount be added as an interest receivable on bad debts. We find that the reasoning of the ITAT that the overdraft was not operated only for investing in the shares of subsidiary company and the fact that it was also used for investment in the shares of the subsidiary company to have control over that company and, therefore, the element of interest paid on the overdraft was not susceptible of bifurcation and therefore, the assessee is entitled to the deduction under Section 36(1)(iii) is correct and deserves to be accepted. In this result, we hold that ITAT was right in deleting the addition, thus the question is answered in favour of the assessee.
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