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TMI Blog2016 (11) TMI 965X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal was admitted by this Court:- "(a) Whether on a true and proper interpretation of sub-section (4) of section 80HHD of the Income Tax Act, 1961, the Tribunal was justified in law in upholding the addition of Rs. 44,68,966/- and its purported findings in that behalf are arbitrary, unreasonable and perverse ? (b) Whether the Tribunal was justified in law in upholding the addition of notional interest of Rs. 40,89,045/- made by the Assessing Officer in respect of the appellant's balances with its subsidiaries and in proceeding on the assumption that the Assessing Officer had disallowed the said amount out of interest expenditure and its purported findings in that behalf are arbitrary, unreasonable and perverse ? (c) Whether the Tribunal was justified in law in holding that the rental income received from Spice Cell Ltd. was assessable as business income and not under the head 'house property' and in not following its orders for the assessment years 2001-02 and 2002-03 ?" The learned Tribunal upheld the addition of a sum of Rs. 44,68,966/- for the following reasons. "We have carefully considered the issue. It is seen from the details given at pages 36,37 of the Paper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was thus a total balance of a sum of Rs. 3.09 crores receivable from HRL. The investment of a sum of Rs. 19 crores in the share capital of HRL, according to the assessee, included a sum of Rs. 44,68,966/- conforming to the reserve or part thereof created by the assessee under sub-section 4 of Section 80HHD. The question for consideration was whether the reserve amounting to a sum of Rs. 44,68,966/- was properly utilized? Under clause (a) to sub-section (4) of section 80HHD, the reserve has to be utilised in any of the six ways appearing in clauses (a) to (f) of subsection (4). Clause (a) provides for construction of new hotels approved by the prescribed authority. Clause (f) provides for subscription to equity shares forming part of any eligible issue of capital made by a public company. "Eligible issue of capital" has been defined in Explanation "e" of section 80HHD of the I.T. Act, which provides as follows: "(e) "eligible issue of capital" means an issue made by a public company formed and registered in India and the entire proceeds of the issue is utilised wholly and exclusively for the purpose of carrying on the business of- (i) setting up and running of new hotels a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9,045/- made by the Assessing Officer in respect of the appellant's balances with its subsidiaries and in proceeding on the assumption that the Assessing Officer had disallowed the said amount out of interest expenditure and its purported findings in that behalf are arbitrary, unreasonable and perverse?" The Assessing Officer was of the following opinion: "In view of above, the assessee should have made provision for interest in the books of accounts minimum @12% on Rs. 3,09,18,109/- and Rs. 5,36,086/-. Accordingly, interest amounting to Rs. 40,89,045/- @13% on the above amount is added back to the total income of the assessee for the year." The aforesaid opinion was formed by the Assessing Officer because- "During the year the assessee company has debited interest on loan (Secured & Unsecured) amounting to Rs. 2,11,65,052/-. The rate of interest appears more or less 13%. On the other hand the assessee has shown a recoverable outstanding balance of advance to a subsidiary of the assessee company amounting to Rs. 3,09,18,109/- for which no interest was charged." We already have, while answering the question (a), summarised the account position between the assessee and HRL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en otherwise, consideration is fixed by taking into account all aspects of the matter. It is not that the assessee was not aware that the recovery of the sale proceeds is likely to take sometime. So, keeping that in view, the sale price was fixed. He submitted that it cannot in any event be contended that the assessee has suffered any loss. Mr. Bandopadhyay, learned Advocate appearing for the revenue, has not disputed that neither the deed of conveyance nor the contract of sale of the immovable property between the assessee and the buyer HRL was taken into consideration either by the Assessing Officer or by the CIT(A) or by the learned Tribunal. Unless the contract is taken into account and the terms and conditions of sale are examined, it cannot be said with any amount of certainty as to whether the contract between the parties provided for payment of interest or was silent as regards the liability of the buyer to pay interest or there was any stipulation not to pay interest. We cannot make any speculation either in that regard. We may, therefore, not be inclined to rest our judgment only on this part of the submission of Mr. Khaitan. It can also be pointed out that liability t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he respective case. For instance, if the directors of the sister concern utilize the amount advanced to it by the assessee for their personal benefit, obviously it cannot be said that such money was advanced as a measure of commercial expediency. However, money can be said to be advanced to a sister concern for commercial expediency in many other circumstances (which need not be enumerated here). However, where it is obvious that a holding company has a deep interest 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." Mr. Bandopadhyay has not been able to find out anything from any of the judgments of the Assessing Officer, the CIT(A) or the learned Tribunal to show that the subsidiary (HRL) did not use its funds for the running of the hotel or for the purpose of providing for facilities for the growth of tourism in India nor is there any evidence to show that any part of the money due and owing by HRL to the assessee was spent for any personal business of any of the d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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