TMI Blog2012 (9) TMI 406X X X X Extracts X X X X X X X X Extracts X X X X ..... plicable in respect of the loan advanced to the respondent-assessee - in favour of assessee. Disallowance of the proportionate interest on the interest free loans given to the subsidiary companies - ITAT deleted it - Held that:- As decided in CIT v. Reliance Utilities and Power Limited [2009 (1) TMI 4 - HIGH COURT BOMBAY] where interest free funds are available with an assesee sufficient to meet its investments and at the same time loans are taken, then a presumption would arise that the investment has been made out of interest free funds available with the company and not out of loans taken - in favour of assessee. - INCOME TAX APPEAL NO.3410 OF 2010 - - - Dated:- 3-9-2012 - S.J.VAZIFDAR M.S.SANKLECHA, JJ. Mr. Vimal Gup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal, in law, was right in deleting the disallowance of the proportionate interest on the interest free loans given to the subsidiary companies? 3 Questions (a) to (c) raise an issue with regard to whether inter corporate deposits would be covered by the provisions of Section 2(22)(e) of the Act, as deemed dividend. 4 For the assessment year 20022003, the respondentassessee filed its return of income declaring an income of Rs.29.41 lacs. The Assessing Officer added to the assessee's income an amount of Rs.8.30 lacs and Rs.78.11 lacs being unsecured loans taken from M/s.Rishab Harsh Trading Investment Pvt. Ltd. ('M/s. Rishab') and Arctic Investment Trading Co. Pvt. Ltd.('M/s. Arctic') respectively, as deemed dividend under Section 2(2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame is not being challenged in this appeal as it has been remanded to the Assessing Officer to examine the issue on facts. So far as the loan taken from M/s. Rishab is concerned, the provisions of Section 2(22)(e) of the Act would be applicable, as the inter corporate deposits were infact loans and advances received by respondentassessee from M/s. Rishab. Consequently, the amounts of loan received by respondentassessee should be charged to tax, as deemed dividend under Section 2(22)(e) of the Act. Further, he submits that the exemption/exclusion from dividend as provided under Section 2(22)(e)(ii) of the Act would not be applicable, as money lending is not substantial part of M/s. Rishab's business. 8 On the other hand, Mr.Pardiwala, Seni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Court in the matter of CIT v. Reliance Utilities and Power Limited, reported in 313 ITR page 340 of this court. In the above case, it has been held that where interestfree funds are available with an assesee sufficient to meet its investments and at the same time loans are taken, then a presumption would arise that the investment has been made out of interestfree funds available with the company and not out of loans taken. In this case, the interestfree funds available were sufficient to meet the investment made by the assessee. In view of the above, question (d) is answered in the affirmative i.e. in favour of the respondentassessee and against the appellantrevenue. 11 The appeal is accordingly dismissed. No order as to costs. - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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