2016 (10) TMI 807 - ITAT CHENNAI

Nature of loss on sale of joint venture - allowability of the interest on borrowed funds - assessee borrowed the fund from the bank and lent it to its sister-concern, which is a wholly owned subsidiary - Held that:- The DRP for the assessment year 2008-09, held that loss arising out of transfer of 50% interest in the joint venture was a capital loss. Hence, subsequent reduction in this sale consideration from ₹ 13 crores to ₹ 9.5 crores would take the same character as capital loss only and it cannot take a different character to say it is a business loss in terms of sec.28(va) of the Act.

It is true that the borrowed amount in question was not utilized by the assessee in its own business, but had been advanced as interest-free loan to its sister-concern and later converted into share capital. However, in our opinion, that fact is not really relevant. What is relevant is whether the assessee advanced such amount to its sister-concern as a measure of commercial expediency.

The Delhi High Court in CIT vs. Dalmia Cement (Bharat) Ltd. [2001 (9) TMI 48 - DELHI High Court] is applicable to the facts of the present case, wherein it was held that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case.

If the money was borrowed for purchase of shares of subsidiary company for the purpose of acquiring controlling interest and acquisition of such controlling interest was of thebusiness of the assessee and it resulted in promote the business of the assessee as well as helpful to the assessee for having management control oversaid such subsidiary company, then the interest expenditure should be allowed u/s.36(1)(iii) of the Act.