TMI Blog2016 (11) TMI 965X X X X Extracts X X X X X X X X Extracts X X X X ..... business. Expansion and diversification, according to us, are both activities pertaining to running of a hotel or any business for that matter. It could not, therefore, have been said that the reserve of a sum of ₹ 44,68,966/- was utilised by the assessee for a purpose not authorised by the statute.In that view of the matter, the addition was unwarranted altogether and the finding in that regard is arbitrary and perverse - Decided against revenue Addition of notional interest in respect of appellant’s balances with its subsidiaries - Held that:- Nothing is found 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 directors. Thus the addition made by the Assessing Officer and upheld by the CIT(A) and the learned Tribunal are not sustainable - Decided against revenue Rental income received - assessable as business income and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing 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 ₹ 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 Book that the foreign exchange reserve was utilized by the assessee during financial year 1993-94 to 2002-03 for addition to plant and machinery, electric installations, kitchen facilities and computers. It has also been admitted by the assessee that during the financial year 2003-04 tourism has suffered and foreign visitors were not coming to India due to spread of terrorism and overall economic situation of the country. It has als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sum of ₹ 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 approved by the prescribed authority; or (ii) providing such new facility for the growth of tourism in India, as the Central Government may, by notification in the Official Gazette, specify. It is not in dispute that the assessee has invested a sum of ₹ 19 crores in the share capital of HRL. The assessee is seeking to take advantage only to the exte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 3,09,18,109/- and ₹ 5,36,086/-. Accordingly, interest amounting to ₹ 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 ₹ 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 ₹ 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 from which it would appear that the sum of ₹ 3 crores approximately remained payable by HRL to the assessee on account of immovable assets of the Goa unit sold by the assessee to HRL. Question naturally will arise whether the assessee was entitled in law to charge interest for the afo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 to pay interest is there in the absence of a contract to the contrary. In other words, liability to pay interest is there unless the seller has agreed not to claim interest and the buyer has agreed not to pay interest. The other part of the submission of Mr. Kh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 directors. In that view of the matter, we are of the opinion that the addition made by the Assessing Officer and upheld by the CIT(A) and the learned Tribunal are not sustainable. Therefore, the question no.[b] is answered in favour of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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