TMI Blog2016 (5) TMI 102X X X X Extracts X X X X X X X X Extracts X X X X ..... and written back" but in the hands of the assessee, it is an expenditure to safeguard its interests or its investment in the subsidiary company. Therefore, it is for the business purpose of the assessee and, hence, revenue in nature and cannot be treated as a capital loss - Decided in favour of assessee Interest-free advance to its subsidiary company in the U.S.A - Held that:- The transaction of capital financing including any type of long- term or short-term borrowing, etc., has become an international transaction with retrospective effect by virtue of clause (i)(c) of the Explanation to section 92B with effect from April 1, 2002, as inserted by the Finance Act of 2012. Therefore, during the relevant period, i.e., financial year 2006-07, when the said transaction was not an international transaction, no such imputation can be made. As far as the nexus between the interest-free loan and the interest-free advance is concerned, we are satisfied that the nexus has been established by the assessee and when there is no interest burden on the assessee by virtue of the loan advanced to its subsidiary, we are of the opinion that no such interest income can be attributed in the hands of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) to improve the financial viability of RIL ; (ii) to facilitate one-time settlement of certain loans in RIL ; and (iii) to complete subscription of non-convertible debentures with face value of ₹ 112.78 crores in RIL ; which is critical for operations of the RIL. 3. The Assessing Officer asked the assessee to justify and explain as to why the amount paid to ICICI Bank Ltd., on behalf of its subsidiary, should not be disallowed in the hands of the assessee. The assessee explained that the payment was done to ICICI Bank due to business/commercial expediency and, therefore, the same is allowable. However, the Assessing Officer held that the assessee did not substantiate such business expediency and that the loan was availed of by the subsidiary company for its business purposes and the payment by the assessee was on account of the bank advice rather than the assessee's own business expediency. He, therefore, disallowed the claim of expenditure of ₹ 12 crores and brought it to tax. Aggrieved, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals) who confirmed the disallowance and further held that the said expenditure, even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... radesh and also by the lenders of the company through a credit restructuring package and that the liability accepted by the company for ₹ 12 crores has been considered as interest and finance charges . He has also drawn our attention to the assessee's reply at page 21 of the paper book which is the assessee's letter dated December 28, 2008, addressed to the Assessing Officer wherein the assessee has given the details of the loan of ₹ 12 crores incurred during the year ended March 31, 2006, and it was further submitted that the assessee had agreed to take over a loan of ₹ 12 crores from ICICI Bank Ltd., extended to RIL, as per the loan letter received from ICICI Bank Ltd., on June 12, 2005. It was submitted that the loan was taken over considering the commercial or business expediency of the assessee. It was stated therein that the assessee has taken over the liability of ₹ 12 crores payable to ICICI Bank Ltd. to protect its investment of ₹ 76.75 crores in RIL and that the expenditure is allowable as the same is incurred out of commercial expediency and to protect the commercial interest of the company in its wholly owned subsidiary. He has als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of expenditure under section 36(1)(iii) of the Income-tax Act and, therefore, are distinguishable on facts and are not applicable to the assessee's case. 7. Having regard to the rival contentions and material on record, we find that the taking over of the loan or discharge of the loan of RIL due to ICICI Bank is on account of the restructuring scheme between the assessee and RIL. It is also not in dispute that RIL is the 100 per cent. wholly owned subsidiary of the assessee-company. The fact that RIL has offered a sum of ₹ 12 crores as the provision no longer required written back is also not in dispute. The learned Departmental representative had argued that the offering of ₹ 12 crores as the income of RIL would not make any difference to its taxability in the hands of the assessee because there were huge brought forward loss which would set off this income and, therefore, the tax liability of RIL was nil. However, we are unable to accept this contention of the learned Departmental representative because the brought forward losses are from the earlier assessment years and the said company, i.e., RIL, is eligible to set off any income arising during the year a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 thereof, it is noticed that on the basis of the debt restructuring proposals cleared by the banks and the financial institutions and other measures initiated by the subsidiary, the diminution in the value of investments is temporary in nature and, therefore, no provision is considered at this stage and the allowability of ₹ 12 crores has been accepted by the company in terms of debt restructuring scheme and the said amount has been considered as interest and finance charges . Thus, we find that the debt restructuring scheme is pursuant to the transfer of the cement business from RIL to the assessee and any transfer of the liability is also to be considered as part of the transaction of transfer of the business to the assessee. 8. The judgments relied upon by learned counsel for the assessee, though are all on the issue of allowability of expenditure under section 36(1)(iii) of the Income-tax Act, we find that the ratio decided therein is very much applicable to the facts of the case before us for the allowability of the claim of deduction under section 37 of the Income-tax Act. In all these decisions, the hon'ble courts have considered the business purpose or comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal 2(a), 2(b) and 3 are, accordingly, allowed. 9. As regards ground No. 4, the brief facts are that the assessee-company had advanced interest-free advance to its subsidiary company in the U.S.A. The Assessing Officer observed that the assessee has not offered any reason for advancement of such loan to its subsidiary and has not furnished any details of interest on loan to the tune of ₹ 12,11,08,000 even though it has obtained a loan of ₹ 22,67,33,000. Therefore, he brought to tax the interest on the funds advanced to its subsidiary at 12 per cent. per annum Aggrieved, the assessee preferred an appeal before the learned Commissioner of Income-tax (Appeals) who partly allowed the same. Against the relief given by the learned Commissioner of Income-tax (Appeals) holding that the interest on loan advanced to the associated enterprise is to be computed by adopting LIBOR +, the Revenue is in appeal before us and against the learned Commissioner of Income-tax (Appeals) orders holding that the interest is to be computed on the advances given by the assessee to its subsidiary in the U.S.A., the assessee is in appeal before us. 10. Learned counsel for the assessee subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... become an international transaction with retrospective effect by virtue of clause (i)(c) of the Explanation to section 92B with effect from April 1, 2002, as inserted by the Finance Act of 2012. Therefore, during the relevant period, i.e., financial year 2006-07, when the said transaction was not an international transaction, no such imputation can be made. As far as the nexus between the interest-free loan and the interest-free advance is concerned, we are satisfied that the nexus has been established by the assessee and when there is no interest burden on the assessee by virtue of the loan advanced to its subsidiary, we are of the opinion that no such interest income can be attributed in the hands of the assessee. In view of the same, ground No. 4 of the assessee is allowed. 13. As regards the Revenue's appeal against the order of the learned Commissioner of Income-tax (Appeals) holding that the rate of interest should be LIBOR +, we find that it requires no adjudication at this stage as we have already held that no interest is chargeable on the interest-free advances given to its subsidiary in the U.S.A. In view of the same, the Revenue's ground is also dismissed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the year. The assessee also submitted that these debentures are transferred to the assessee in a scheme of arrangement during the year in appeal and that since the Assessing Officer had not allowed proportionate amount of discount on debentures, the appellant should be allowed to claim discount on debentures for proportionate period of 9 months, i.e., ₹ 1,91,80,000 due to the scheme of arrangement which came into effect from July 1, 2006. The learned Commissioner of Income-tax (Appeals), however, held that the assessee had not made any claim in this regard in its return of income and the Assessing Officer has also not made any reference to this issue in his assessment order. Therefore, holding that this is not the issue arising from the assessment order, the learned Commissioner of Income-tax (Appeals) dismissed the same as not maintainable under section 246A of the Income-tax Act. Against the learned Commissioner of Income-tax (Appeals) order in not admitting the additional grounds of appeal raised by the assessee, the assessee is in appeal before us, while the Revenue is in appeal against the order of the learned Commissioner of Income-tax (Appeals) in deleting the disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in I. T. A. No. 989/Hyd/2014 is concerned, we find that the Government of Andhra Pradesh has allowed the deferment of sales tax in the case of the assessee and learned counsel for the assessee has filed a copy of the said order before us. However, we find that the Assessing Officer has disallowed the interest paid on sales tax deferment whereas, it is the case of the assessee that the assessee has not paid any interest on sales tax deferment nor has it claimed it to be due. It is stated that the cement business of Rain Cements Ltd. was transferred to the assessee-company in a scheme of arrangement approved by the hon'ble Andhra Pradesh High Court with effect from July 1, 2006, consequent to which, all the assets and liabilities of the cement business were transferred to the company and the liability of sales tax as recorded by the subsidiary was much lower than the actual liability as computed by the VAT Department. A copy of the VAT assessment order dated August 30, 2006, is filed before us to demonstrate that the actual sales tax liability of the subsidiary was ₹ 38,25,48,170 whereas it was ₹ 29,45,89,703 as recorded in the books of the subsidiary on the date o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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