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2012 (6) TMI 623 - AT - Income TaxDeduction of interest - Investment of interest free funds - commercial expediency - held that:- it is clear that no interest bearing funds were utilized by the assessee for the purpose of subscribing to the share capital of its subsidiary company. So long as the interest bearing funds are used for the business purpose, whether for investment in fixed or circulating capital, the amount of interest shall be allowed as deduction. If answer to stage (a) turns out to be in negative, only then the question of examining the stage (b) arises as to whether investment for non-business purpose was made out of interest free funds. If such investment for non-business purposes is out of interest free funds, then there cannot be disallowance of interest and vice versa. The second stage arises for consideration on the assessee's failure to succeed in the first. As in the instant case, the assessee failed to amply prove the business purpose in terms of S.A. Builders Ltd. [2006 (12) TMI 82 (SC)], but succeeded in proving that interest free funds were utilized for subscribing to the share capital of its subsidiary company, in my considered opinion the addition cannot be sustained. - Decided in favor of assessee. - Third member bench decision.
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