Home Case Index All Cases Income Tax Income Tax + HC Income Tax - 2016 (6) TMI HC This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2016 (6) TMI 1395 - HC - Income TaxDeduction u/s 36(1)(iii) - interest expenses relatable to interest free advances - ITAT allowed the deduction - HELD THAT:- In the judgment in CIT v. V.I.Baby and Co. [2001 (10) TMI 58 - KERALA HIGH COURT] a Division Bench of this court considered this provision and held that in a case where interest free advance was given by the assessee and deduction is claimed, the question to be considered is what is the benefit that is derived by the assessee by giving such interest free advance. It was also held that so long as the assessee is not the beneficiary of the investments made by the partners, their relatives and the sister concerns from out of the interest free advances, the Assessing Officer is perfectly justified in disallowing interest in proportion to the advances made. Subsequently, the Honourable Supreme Court also had occasion to consider the provisions of Section 36(1)(iii) in the judgment in S.A.Builders Ltd. v. CIT (Appeals) [2006 (12) TMI 82 - SUPREME COURT]. In that case, after a detailed examination of the provisions, the Supreme Court held that when a claim for deduction under Section 36(1)(iii) is made, the authorities should enquire as to whether the interest free loan was given as a measure of commercial expediency and on facts if it is so found, deduction is liable to be allowed. The court also explained that the expression “commercial expediency” is an expression of wide import and includes such expenditure that a prudent businessman incurs for the purpose of business and that such expenditure may not have been incurred under any legal obligation. We set aside the orders impugned and answering the questions of law in favour of the revenue, these appeals are disposed of remitting the matter to the AO who shall reconsider the cases of the assessee, after issuing notice to the parties.
|