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2016 (3) TMI 450 - ITAT MUMBAI

2016 (3) TMI 450 - ITAT MUMBAI - TMI - Disallowance of interest u/s 36(1)(iii) - finance provided by way of Share Application/loan to its subsidiaries/sister concerns out of commercial expediency - Held that:- It is true that no allowance no sham or colorable transaction is permissible. If the object of the borrowing is illusory or colorable and not genuinely for the business purposes, then the provision has no application. To be admissible as an allowance under the section interest must be paid .....

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subsidiaries for “business exigencies”, wherein, the assessee is a holding company, thus, it is not a colorable device.

The money was advanced by the assessee holding company to its subsidiaries for “business expediency”, which has to be judged by the business man itself. The facts brought before us are that the assessee has pleaded before the lower authorities that the amount invested has been used by the subsidiaries for the purpose of business. The assessee has significant interes .....

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e decision of the ld. Commissioner of Income Tax (Appeals) and allow the appeal of the assessee. - Decided in favour of assessee - ITA NO.8382/Mum/2011 - Dated:- 3-2-2016 - Shri Joginder Singh, Judicial Member, and Shri Ashwani Taneja, Accountant Member For The Assessee : Shri Vijay Mehta For The Revenue : Mr.J. Saravanan -DR ORDER Per Joginder Singh (Judicial Member) The assessee is aggrieved by the impugned order dated 16/09/2011 of the ld. First Appellate Authority, Mumbai. The only ground ra .....

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are application to group companies, where the assessee is a holding company. The crux of argument is that the amounts were advanced for commercial expediency. Our attention was invited to page 1 of the paper book, containing the status of funds, balance sheet and the capital available with the assessee. The disallowance was argued to be primarily on this count. It was contended that for assessment year 2007-08, while framing assessment u/s 143(3) of the Act (Page 6 of the paper book), no disallo .....

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used or the money was not advanced for business purposes. Our attention was invited to page-5 (Para 2.2.2 of the Impugned order and Page7 of the assessment order). Reliance was placed upon the decision in S.P. Jaiswal Estates (P.) Ltd. vs ACIT (140 ITD 19) (TM) (Kol.), Hero Cycles P. Ltd. vs CIT (379 ITR 347)(SC). It was also explained that the cases relied upon by the ld. Commissioner of Income Tax (Appeals) are prior to the decision arrived at in the case of S.A. Builders Ltd. vs CIT (supra). .....

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the argument is that if interest is allowed in earlier year, the same cannot be disallowed in later year unless and until the facts are different. For this proposition, reliance was placed upon following decision: i. CIT vs Sridev Enterprises (192 ITR 165)(Kar.) ii. ITO vs J.M.P. Enterprises (101 ITD 324, 336-337) (Asr) iii. Escorts Ltd. vs ACIT (104 ITD 427, 512-513)(Del.) iv. Malwa Cotton Spinning Mills vs ACIT (89 ITD 65, 94- 95)(Chd)(TM) v. CIT vs Industrial Cables (India) Ltd. 209 CTR (P &a .....

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y filing revised return by the assessee and the same was accepted by the Assessing Officer. This factual matrix was consented to be correct by the ld. DR. 2.2. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee company was incorporated with main objects of financing and promoting group companies, declared loss of ₹ 1,75,537/- in its return filed on 27/09/2008. The ld. Assessing Officer disallowed claimed interes .....

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diaries used these funds for their business purposes, therefore, the interest thereon was claimed as allowable u/s 36(1)(iii) of the Act. The ld. Assessing Officer completed the assessment u/s 143(3) of the Act disallowing ₹ 6,63,78,465/- u/s 36(1)(iii) of the Act on the ground that no business interest of the assessee has been served by granting interest free loans to its subsidiaries. 2.3. On appeal, before the ld. Commissioner of Income Tax (Appeals), the explanation of the assessee cou .....

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original return of income. The appellant further submitted that the share application money /loans to subsidiary out of commercial expediency. The subsidiary has used these funds for its business. Hence, it use of funds expediency. The subsidiary has used these funds for its business. Hence, is use of funds by the appellant for its own business and interest thereon is allowable. This was examined by the Hon'bIe Supreme Court in the case of S.A. Builders Ltd vs CIT- 288 ITR 1 and was first u .....

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nd advance share application money to various companies including subsidiary companies including subsidiary companies. Accordingly, the interest has been utilized not for the purpose of business of the appellant and total income of interest claimed is ₹ 6,79,03,542/-. The Ld. AO placed reliance on the decision of Hon'ble Supreme Court in the case of S.A. Builders Ltd Vs. CIT ( 2007) 288 ITR 1 (SC). The Ld. AO further held that as per appellant's own working in original return of in .....

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ies and interest on income tax refunds, total interest received was ₹ 15,25,077 1 -. The Ld. AO asked the appellant to demonstrate the utilization of funds taken on loan. Then the Ld. AO found that out of current years loan only ₹ 75.00 lakh on 08.06.2007 and ₹ 30.00 lakh on s13.06.2007 was utilized for investment towards earning interest income at 15% and 12% respectively. The Ld. AO further observed that the appellant has also given loan @ 14.5% to Shree Vijayraj on21.09.2007 .....

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s were not given to subsidiaries, appellant company has earned interest @15% on all funds and in this way,5% interest has been earned. Appellant has borrowed funds@14.5% and in this way, there was occurred income to the company and there would have been profit to the company and not loss. The appellant further submitted that no business interest of the company has been served by granting interest free loans to subsidiaries. The Id. AO therefore disallowed appellant's claim of interest at  .....

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ubsidiaries and other associate concerns. The share application money/loans advanced to subsidiary out of commercial expediency. The subsidiary has used these funds for its business. Hence, it is use of funds by the appellant for its own business and interest thereon is allowable. The Ld. AR of the appellant further submitted that this proposition was examined by the Supreme Court in the case of S. A. Builders Ltd (288 ITR 1) and was first held by IT AT Mumbai in the case of Indian Hotels Ltd (2 .....

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anies is as under: Name of the Company Amount(Rs.) 31.03.2008 % age of holding Inter Corporate Deposit Fun Multiplex (P) Ltd. 33,51,83,379 99.94% Shree Vijayraj Entertainment & Software (P.) Ltd. 1,07,53,801 Interest Charged Suncity Projects (P.) Ltd. 5,28,689 Interest Charged Share Application money Fun Multiplex (P.) Ltd. 18,77,00,000 99.94% E City Reality Holdings P. Ltd. 44,75,00,000 99.00% E city Exhibition Holding P. Ltd. 1,45,50,000 99.79% E City Films (India) Pvt. Ltd. 5,32,84,430 50 .....

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vances for their own business and not for any non-business purpose and therefore has to be considered as use of funds for its own business out of commercial expediency and therefore even if the borrowed funds are utilized for such advances the assessee is entitled to deduction of interest. The Ld. AR of the appellant further submitted that where a loan is advanced to a subsidiary/sister concern it stands on a different footing than to its directors or their close relatives. In the case of a hund .....

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and a case of the loan misutilised by giving it interest free or at a nominal interest to directors, their relatives. In the latter situation, interest can be disallowed, but not in the case where advances are made to a subsidiary company who used the same for purposes of business. The Ld. AR of the appellant further submitted that Hon'bIe Supreme Court in case of S.A. Builders Ltd vs. CIT 288 ITR 1/158 Tax man 74 it is held as under: (a) The amount advanced to subsidiaries or sister concern .....

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. 2.2.3. The Ld. AR of the appellant further submitted that applying, the ratio of decision of Apex Court (Supra) to the facts of the appellant's case, no part of interest disallowed relates to interest free advances made to subsidiaries on account of commercial expediency and its deep business interest. Without prejudice to above, the appellant further submitted that submit that interest free funds / internal accruals have been used for the purpose of giving interest free loans / share appl .....

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balance in Profit & Loss 8,10,77,174 1,39,57,504 105,31,94,826 95,28,14,496 Less Investments 64,95,04,500 64,95,04,500 40,36,90,326 30,33,09,996 2.2.4. Without prejudice to the above, the Ld. AR of the appellant further submitted that no interest is disallowable u/s 36 (l)(iii), alternatively from the above chart it is very much clear that interest free funds available with the assessee at the end of the year was ₹ 40.37 crores on which no disallowance can be made u/s 36 (1) (iii). The .....

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(supra) the Ld. AO at the most can disallow interest in proportion to interest free advances/ share application money given to subsidiaries/ associate concerns outstanding at the year end and interest free funds of ₹ 40.37 Crores available to the assessee as explained above. The Ld. AR of the appellant further observed that Ld. AO has also observed that had the interest bearing funds were not given to subsidiaries, assessee company could have earned interest @ 15% on all funds and by this .....

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re purely business transactions and out of commercial expediency hence interest on account of such advances if disallowed will be against the judgment of Hon. Supreme Court. The Ld. AR of the appellant further placed reliance on the following decisions:- i) Supreme Court in case of S.A. Builders Ltd vs CIT 288 ITR 1 (SC). ii) The ITAT judgment in the case of Indian Hotels is also very relevant. ITAT Mumbai in case of DCIT Vs. Indian Hotels Co. Ltd (276 ITR 104) ill) Reliance Utilities (313 ITR 3 .....

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got a surplus fund available to it amounting to ₹ 43.36 Crores which are sufficient to meet the advances made to subsidiary companies. I find that both the arguments of the ld. AR of the appellant deserve no merit. Firstly, that the appellant is a investment company and gives loan& advances and does not deal in treading of shares &securities. Therefore, the main business of the appellant company is to give loan etc. and earned income thereon while the subsidiary company of the appe .....

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including interest on I.T. refunds. 2.3.2. I find that the position of law has been elaborated by the various courts wherein it has been held that if the assessee borrowed funds and then divert the same to its sister concern for non business purpose or for the purpose of carrying on their business purpose, the same cannot be said to be given for the purposes of assessee's own business and the proportionate interest on such advancing of loan need to be disallowed. In the case of Marolia & .....

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personal use or utilisation, the firm would not be entitled to claim deduction on the amount diverted for utilization for other purposes or by other persons. It appears to be settled that an assessee-firm cannot be entitled to claim deduction under cl. (iii) of sub-so (1) of s. 36 on the amount which is not used for the purposes of business but is given to the partners for their personal use. Therefore, it follows from the decision of this case that assesseefirm cannot claim deduction of intere .....

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distinct legal entity does not by itself establish that the purported investment was a genuine investment, which company had' made for securing benefits to itself by way 'of trading or carrying on business through that subsidiary. Sum of ₹ 10 lakhs was paid to the Bombay company on the same day on which it was paid to A Ltd. Though A Ltd. is purported to charge interest in the first year, subsequently, no interest at all was charged to the Bombay company on that sum. It is not the .....

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are not permissible, though the dividing line is not always easy to draw, but such line does exist. The true character of the transaction here clearly was one of an advance by the assessee to the Bombay company for whose benefit that sum was obviously intended and had only been channelled through the A Ltd. The Tribunal has failed to notice the facts which had been set out in the draft assessment order and has also erred in adopting the wrong approach for the purpose of deciding as to whether th .....

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ssee's business. The Tribunal was not right in deleting the disallowance of interest attributable to borrowers diverted to I Ltd. through A Ltd. 2.3.4. In the case of CIT V Is. Motor General Finance Ltd (2002) 173 CTR (Del) 123 wherein the Hon'ble Delhi High Court has held that the assessee is a financing company. Whether it borrows a huge sum of money, cash balance in its own account may show a huge account and the same may not be determinative of the question as to whether the said amo .....

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en by the assessee. The onus to prove that it is entitled to in this regard was on the assessee. It was to be proved that a bona fide loan had been granted in favour of a sister concern. It was, therefore, its duty to place requisite materials on record. Keeping in view the fact that the assessee had not produced materials, despite opportunities having been granted to it, by the AO, the purported finding of fact arrived at by the Tribunal must be held to be perverse. In other years also the asse .....

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ee, the questions of law involved in the instant case should be answered in negative. 2.3.5. In the case of CIT V / s. Doctor & Co. (1989) 180 ITR 627 (Born), the Hon'ble Bombay High Court has held that the assessee had borrowed money from different persons in the earlier years on interest and that a part of the money so borrowed was advanced to its sister concerns free of interest. The interest to the extent it was payable on the moneys borrowed and diverted to sister concerns free of i .....

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lable for the purpose of advancing money to the sister 'concerns was rightly rejected by AAC for the reason that the assessee must have likewise sold goods on credit free of interest. Besides this, the amounts advanced to its sister concerns, on the assessee's own admission, were at least partly out of borrowed funds. Accordingly, he computed the amount available to the assessee out of its capital on an average basis and the loans advanced to the sister concerns on interest at the rate o .....

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t the assessee had placed on record the fund-flow statement for the year 1995-96 which itself shows that the concern had taken unsecured loans, which was considered as one of the main sources of funds and still had opted to give loan to the extent of ₹ 34,42,850 to its sister-concern. Whether there existed any commercial expediency for the assessee to transfer the said amount to one of its sister-concerns or not, is primarily a question of fact. The contention that the funds were advanced .....

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n of law, much less a substantial question of law, arises in the present case, the other predominant factors which would require dismissal of the appeal is that, from the records nexus can be traced between the borrowed funds and the interest-free advances made by the assessee and its sister-concern. Secondly, it has been clearly established on record that the assessee itself had taken loans with interest and had advanced funds by diversion or otherwise to its sisterconcern free of interest. In .....

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t of loan, there was substantial amount of loan in the form of working capital which was not required to be returned after any specified period. Rather, the same is use of money in day-to- day working of the company and usually there remains a debit balance in the account of the company which bears interest only to the extent of debit balance in the account. In such a situation, in case the assessee had not advanced loans to its sister-concern on interest-free basis, even if the alleged surplus .....

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he nature of funds being provided to sister-concern which are closely-held to carry on business and earn income there on without incurring any cost of fund or without even investing anything. If the assessee had to transfer the money in the form of interest-free loan from one company to another close company, the same could very well be in the manner by introducing less capital in one company and by investing the balance amount in the other company as capital because according to the assessee, i .....

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rconcerns without interest is on the Revenue is not correct. Sec.36(1 )(iii) provides for deduction of interest on the loans raised for business purposes. Once the assessee claims any such deduction in the books of account, the onus will be on the assessee to satisfy the AO that whatever loans were raised by the assessee, the same were used for business purposes. If in the process of examination of genuineness of such a deduction, it transpires that the assessee had advanced certain funds to sis .....

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tent. Even the plea of nexus of loans raised by the assessee with the funds advanced to the sister-concerns on interestfree basis, may be it is pleaded to be out of sale proceeds or share capital or different account cannot be accepted, Entire money in a business entity comes in a common kitty. The monies received as share capital, as term loan, as working capital loan, as sale proceeds, etc. do not have any different colour. Whatever are the receipts in the business, that have the colour of bus .....

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me is either required to be circulated and utilised for the purpose of business or to be invested in a manner in which it generates income and not that it is diverted towards sister-concern free of interest. This would result in not presenting true and correct picture of the accounts of the assessee as at the cost being incurred by the assessee, the sister-concern would be enjoying the benefits thereof. It cannot possibly be held that the funds to the extent diverted to sister-concerns or other .....

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s for non- business purposes was out of its own funds in the form of capital introduced in business, that again will show a camouflage by the assessee as at the time of raising of loan, the assessee will show the figures of capital introduced by it as a margin for loans being raised and after the loans are raised, when substantial amount is diverted to sister-concerns for non-business purposes without interest, a plea is sought to be raised that the amount advanced was out of its capital, which .....

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ge. However, a presumption may be raised in a given case as to why an assessee who for the purpose of running its business is required to borrow money from banks and other financial institutions would be giving loan to its subsidiary companies and that too when it pays a heavy interest to its lenders, it would claim no or little interest from its subsidiaries. If the amount is advanced from a mixed account or share capital or sale proceeds or profits, etc., the same would not be termed as divers .....

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any interest is to be disallowed under s. 36(1)(iii) of the Act. Such borrowings to that extent cannot possibly be held for the purpose of business but for supplementing the cash diverted without deriving any benefit out of it. Accordingly, the assessee will not be entitled to claim deduction of the interest on the borrowings to the extent those are diverted to sister-concerns or other persons without interest 2.3.10. Therefore, the inference that can be drawn from ration of the above case is t .....

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made by the Ld. AO is accordingly upheld and this ground of appeal is accordingly dismissed. 2.4. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, we find that identical submissions were raised by the assessee before the ld. First Appellate Authority. Now, we are expected to deal with the objectio .....

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are also doing identical activities. Before us, the stand of the assessee is that commercial expediency was very much there in advancing such loans. For this proposition, we are expected to analyze the utilization of such loans. We note that there is no finding in the assessment order that such loans were not used for business purposes, whereas, for A.Y. 2007-08, while framing the assessment u/s 143(3) of the Act, no disallowance was made by the Department against identical claim of the assesse .....

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DCIT vs United Vanaspati (275 ITR 124) (AT)(Chandigarh ITAT) vii. Union of India vs Kumudini N. Dalal 249 ITR 219 (SC) viii. Union of India vs Satish Pannalal Shah 249 ITR 221 ix. B.F.Varghese vs State of Kerala 72 ITR 726 (Ker.) x. CIT vs Narendra Doshi 254 ITR 606 (SC) xi. CIT vs Shivsagar Estate 257 ITR 59 (SC) xii. Pradip Ramanlal Seth vs UOI 204 ITR 866 (Guj.) xiii. Radhaswamy Satsang vs CIT 193 ITR 321 (SC) xiv. Agarwal warehousing & Leasing Ltd. 257 ITR 235 (MP) The sum and substance .....

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e assessee. In the following cases, wherein, interest on loan was not disallowed in earlier years and the loan balance was brought forward from earlier year, it was held that no disallowance for interest on such loan could be made for the subsequent assessment years:- i. CIT vs Sridev Enterprises (192 ITR 165)(Kar.) ii. ITO vs J.M.P. Enterprises (101 ITD 324, 336-337) (Asr) iii. Escorts Ltd. vs ACIT (104 ITD 427, 512-513)(Del.) iv. Malwa Cotton Spinning Mills vs ACIT (89 ITD 65, 94- 95)(Chd)(TM) .....

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CIT (288 ITR 1)(SC). The relevant portion of the same is extracted hereunder for ready reference:- 23. In our opinion, the decisions relating to section 37 of the Act will also be applicable to section 36(1)(iii) because in section 37 also the expression used is " for the purpose of business" . It has been consistently held in the decisions relating to section 37 that the expression " for the purpose of business" includes expenditure voluntarily incurred for commercial expedi .....

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[1925] 10 TC 155 (HL) has been approved by this court in several decisions, e.g., Eastern Investments Ltd. v. CIT [1951] 20 ITR 1, CIT v. Chandulal Keshavlal and Co. [1960] 38 ITR 601, etc. 25. In our opinion, the High Court as well as the Tribunal and other Income-tax authorities should have approached the question of allowability of interest on the borrowed funds from the above angle. In other words, the High Court and other authorities should have enquired as to whether the interest free loa .....

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xpediency. 27. No doubt, as held in Madhav Prasad Jatia v. CIT [1979] 118 ITR 200 (SC), if the borrowed amount was donated for some sentimental or personal reasons and not on the ground of commercial expediency, the interest thereon could not have been allowed under section 36(1)(iii) of the Act. In Madhav Prasad' s case [1979] 118 ITR 200 (SC), the borrowed amount was donated to a college with a view to commemorate the memory of the assessee' s deceased husband after whom the college wa .....

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have examined whether the amount advanced to the sister concern was by way of commercial expediency. 30. It has been repeatedly held by this court that the expression " for the purpose of business" is wider in scope than the expression " for the purpose of earning profits" vide CIT v. Malayalam Plantations Ltd. [1964] 53 ITR 140 (SC), CIT v. Birla Cotton Spinning and Weaving Mills Ltd. [1971] 82 ITR 166 (SC), etc. 31. The High Court and the other authorities should have exam .....

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d such amount to its sister concern as a measure of commercial expediency. 33. Learned counsel for the Revenue relied on a Bombay High Court deci sion in Phaltan Sugar Works Ltd. v. CWT [1994] 208 ITR 989 in which it was held that deduction under section 36(1)(iii) can only be allowed on the interest if the assessee borrows capital for its own business. Hence, it was held that interest on the borrowed amount could not be allowed if such amount had been advanced to a subsidiary company of the ass .....

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ial expediency is the correct view, and the view taken by the Bombay High Court which set aside the aforesaid decision is not correct. 34. Similarly, the view taken by the Bombay High Court in Phaltan Sugar Works Ltd. v. CIT [1995] 215 ITR 582 also does not appear to be correct. 35. We agree with the view taken by the Delhi High Court in CIT v. Dalmia Cement (B.) Ltd. [2002] 254 ITR 377 that once it is established that there was nexus between the expenditure and the purpose of the business (whic .....

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must not look at the matter from their own view point but that of a prudent businessman. As already stated above, we have to see the transfer of the borrowed funds to a sister concern from the point of view of commercial expediency and not from the point of view whether the amount was advanced for earning profits. 36. We wish to make it clear that it is not our opinion that in every case interest on borrowed loan has to be allowed if the assessee advances it to a sister concern. It all depends .....

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terest in its subsidiary, and hence if the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the assessee would, in our opinion, ordinarily be entitled to deduction of interest on its borrowed loans. 37. In view of the above, we allow these appeals and set aside the impugned judgments of the High Court, the Tribunals and other authorities and remand the matter to the Tribunal for a fresh decision, in accordance with law and .....

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a subsidiary of the assessee) should be allowed as a deduction under section 36(1)(iii) of the Income-tax Act, 1961,one has to enquire whether the loan was given by the assessee as a measure of commercial expediency . The expression commercial expediency is one of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as business expenditure if it was inc .....

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RITISH INSULATED AND HELSBY CABLES LTD. [1925] 10 TC 155 (HL),EASTERN INVESTMENTS LTD. v. CIT [1951] 20 ITR 1 (SC); [1951] 21 Comp Cas 194 (SC) and CIT v. CHANDULAL KESHAVLAL AND CO. [1960] 38 ITR 601 (SC) followed. The expression for the purpose of business is wider in scope than the expression for the purpose of earning profits . CIT v. MALAYALAM PLANTATIONS LTD. [1964] 53 ITR 140 (SC) and CIT v. BIRLA COTTON SPINNING AND WEAVING MILLS LTD. [1971] 82 ITR 166 (SC) followed. The Hon ble Apex Cou .....

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ant. What is relevant is whether the amount was advanced as a measure of commercial expediency and not from the point of view whether the amount was advanced for earning profits. xxxxxxxxxxxxxxxx While coming to the aforesaid conclusion, the Hon ble Apex Court duly considered the decisions in CIT v. DALMIA CEMENT (B.) LTD. [2002] 254 ITR 377 (Delhi) approved. PHALTAN SUGAR WORKS LTD. v. CWT [1994] 208 ITR 989 (Bom) and overruled the decision in PHALTAN SUGAR WORKS LTD. v. CIT [1995] 215 ITR 582 .....

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ncy is concerned, the decision has to be taken by the assessee and the Assessing Officer is not expected to sit in the chair of the assessee and to decide the business interest. The assessee is to watch its business interest well. Once it is established that there was nexus between the expenditure and 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 arm-chair of the businessman or in the position .....

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capital borrowed for acquisition of an asset for extension of existing business or profession (whether capitalized in the books of accounts or not) and such amount of interest is for the period beginning from the date on which the capital was borrowed for acquisition of the assessee till the date on which such asset was first put to use. The Departmental Circular No.7 of 2003 dated 05/09/2003 also elucidate date on this point. We note that section 36(1)(iii) is a code by itself. It makes no dis .....

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ed to claim interest paid on borrowed capital provided it is used for business purposes irrespective of what may be the result of using the capital which the assessee has borrowed. In relation to section 36(1)(iii) actual cost of an asset has not relevancy. Our view find supports from the decisions DCIT vs Core Health Care Ltd. (2008) 298 ITR 194, 199 (SC) and ratio laid down in Gujarat State Fertilizer & Chemicals Ltd. vs ACIT (2009) 313 ITR 244, 246 (Del.). 2.7. We shall analyze the meanin .....

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28A) means interest payable in any manner in respect of any monies borrowed or debt incurred….. . In the context and collocation of section 36(1)(iii) interest is restricted to that own money borrowed and not on debt incurred. What is allowable as deduction u/s 36(1)(iii) is any sum paid by way of interest in the commercial sense. There cannot be strait jacket formula as was held in CIT vs Hindustan Condutors Pvt. Ltd. (1999) 240 ITR 762, 768-69, 770 (Bom.) and CIT vs Sarswati Chemical an .....

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00 (SC) ii. Addl. CIT vs Laxmi Agents Pvt. ltd. (1980) 125 ITR 227 (Guj.) iii. Marolia & Sons vs CIT (129 ITR 475)(All.) iv. Regal Theater vs CIT (225 ITR 205)(Del.) v. CIT vs Bombay Samachar Ltd. (74 ITR 723)(Bom.), vi. Ramkishan Oil Mills vs CIT (56 ITR 186)(MP) vii. Calico Dyeing and Printing Works vs CIT (34 ITR 265)(Bom.) 2.8. For making a disallowance u/s 36(1)(iii) of the Act essentially, there has to be a finding that the borrowed money were utilized for non-business purposes. As was .....

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Subsequently, it waved interest in respect of certain such loans. It was held that the subsequent waver did not alter the nature of loans. The ratio laid down in Gleneburn Estate Ltd. vs State of Tamilnadu 240 ITR 719 (Mad.) supports the case of the assessee. 2.9. The expression for the purposes of business occurring in section 36(1)(iii) and also in section 37(1) is wider in scope then the expression for the purposes of making or earning…… income occurring in section 57(iii). Thus .....

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levant material, is necessary as was held in CIT vs R.K. Metal Works 112 ITR 445 (Punjab). In Veecumsess vs CIT (1996) 220 ITR 185, 190 (SC), their lordship of the Apex Court have taken a view that when the assessee carries on more than one business and one business is transferred or closed and if loan was taken earlier for the business, which subsequently closed, but if the management is common, the interest paid on that loan cannot be denied, though one of the lines of the business or any bran .....

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duary head income from other sources the interest paid on money so borrowed should be bifurcated proportionately between the business income and income from other sources (H.K. Investment Pvt. ltd. vs CIT 211 ITR 511, 514 (Guj.). However, in the present case, the facts are entirely different as the assessee advanced the funds to its subsidiaries for business exigencies , wherein, the assessee is a holding company, thus, it is not a colorable device. 2.11 In the case of CIT vs Reliance Communicat .....

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he subsidiary company in the form of loan, advances or share application money. If the amount has been invested for the purposes of business of the assessee, then no disallowance can be made in the hands of the assessee. The Hon ble Apex Court in Hero Cycles Pvt. Ltd. vs CIT (2015) 379 ITR 347 (SC) vide latest order dated 05/11/2015 on the issue of interest on borrowed capital, wherein, advances were made to subsidiaries, pursuant to undertaking given to financial institutions by assessee to pro .....

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