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2017 (1) TMI 244

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..... Tax (Appeals) Chandigarh and Anr.[2006 (12) TMI 82 - SUPREME COURT] in the present case, the assessee borrowed the fund from the bank and lent some of it to its sister concern (a subsidiary) on interest free loan. The test, in our opinion, in such a case is really whether this was done as a measure of commercial expediency. 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 decisions relating to Section 37 that the expression "for the purpose of business" includes expenditure voluntarily incurred for commercial expediency, and it is immaterial if a third party also benefits thereby. Taking into account the decision of the Supreme Court, we are of the opinion that it was not interest which was from the borrowed fund which was running from the finance which is justified by CIT learned Tribunal. - Decided in favour of the assessee - DB Income Tax Appeal No. 249/2005, DB Income Tax Appeal No. 245/2005 - - - Dated:- 23-11-2016 - K. S. Jhaveri And Mahendra Maheshwari, JJ. For the Appellant : Anuroop Singhi .....

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..... f the ITAT is perverse, contrary to the record and untenable in the eye of law? 3. The counsel for the respondent Mr. Jhanwar submits that two issues are squarely covered by the decision of this Court in the case of same assessee in Commissioner of Income Tax (I) Jaipur Vs. Baid Leasing Finance Company Ltd., D.B. Income Appeal No.116/2003 decided on 1.7.2013 wherein it has been held as under:- 9. The facts of the case are not in dispute between the parties. The assessee-company is engaged in the business of leasing the vehicles. The assessee claimed depreciation, being lessor of the vehicles. However, the same was disallowed by the Assessing Officer and the same was upheld by Commissioner of Income Tax (Appeals) also. Learned Income Tax Appellate Tribunal considered various aspects of the case and provisions of law and came to a conclusion that assessee was entitled to depreciation under Section 32(1) of the Act. 10. Learned counsel for respondent/assessee submitted that the controversy involved in the present case is fully covered by latest decision of Hon'ble Apex Court in Industrial Credit And Development Syndicate Limited vs. Commissioner of Income Tax, Myso .....

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..... , on the ground that they were hired out to the Appellant's customers . 14. The Hon'ble Apex Court considered the various judgments, the dictionary meaning of the word owner , the provisions of Income Tax Act and the Motor Vehicles Act and answered both the questions framed in para 8 in favour of assessee and against the revenue. Para 34 of the judgment of the Apex Court is reproduced, as under :- For the foregoing reasons, in our opinion, the High Court erred in law in reversing the decision of the Tribunal. Consequently, the appeals are allowed; the impugned judgments are set aside and the substantial questions of law framed by the High Court, extracted in para 8 (supra), are answered in favour of the assessee and against the Revenue. There will, however, be no order as to costs . 15. It is also relevant to mention that the Hon'ble Apex Court has considered two submissions of Revenue regarding owner of the vehicle and use of the vehicle in the course of its business and both the submissions were negatived by the Hon'ble Apex Court. Para 15 and 16 of the judgment are reproduced, as under :- 15. The Revenue attacked both legs of this portion of .....

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..... eturn the vehicle to the assessee; (iv) The assessee had the right of inspection of the vehicle at all times. 27. The only hindrance to the claim of the assessee, which is also the lynchpin of the case of the Revenue, is Section 2(30) of the MV Act, which defines ownership as follows: 2.(30) 'owner' means a person in whose name a motor vehicle stands registered, and where such person is a minor, the guardian of such minor, and in relation to a motor vehicle which is the subject of a hire-purchase agreement, or an agreement of lease or an agreement of a hypothecation, the person in possession of the vehicle under that agreement; The general opening words of the Section say that the owner of a motor vehicle is the one in whose name it is registered, which, in the present case, is the lessee. The subsequent specific statement on leasing agreements states that in respect of a vehicle given on lease, the lessee who is in possession shall be the owner. The Revenue thus, argued that in case of ownership of vehicles, the test of ownership is the registration and certification. Since the certificates were in the name of the lessee, they would be the legal owner .....

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..... ommissioner of Income Tax (Appeals) Chandigarh and Anr. (2007) I SCC 781, wherein it has been held as under: In our opinion, the High Court in the impugned judgment, as well as the Tribunal and the Income Tax authorities have approached the matter from an erroneous angle. In the present case, the assessee borrowed the fund from the bank and lent some of it to its sister concern (a subsidiary) on interest free loan. The test, in our opinion, in such a case is really whether this was done as a measure of commercial expediency. 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 decisions relating to Section 37 that the expression for the purpose of business includes expenditure voluntarily incurred for commercial expediency, and it is immaterial if a third party also benefits thereby. 7. Counsel for the respondent Mr. Jhanwar has relied upon decision of Gujarat High Court in Commissioner of Income Tax (I) Vs. Arihant Avenue Credit Ltd., [2013] 36 taxmann.com 14(Gujarat) holding as under: 4. .....

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..... s and loans and if the total interest free advances including the debit balance of the partners did not exceed the total interest free funds available with the assessee, interest was not disallowable merely on account of the utilization of the funds for nonbusiness purposes. 9. Decision of the Supreme Court in Munjal Sales Corporation Vs. Commissioner of Income Tax, Ludhiana [2008] 18 taxman 43 (SC) wherein also it has been held: For the AYs 1995-96 and 1996-97, Tribunal held that during the said years, no interest free advances to sister concerns were made and, therefore, there was no nexus between interest bearing loans taken and interest free advances . However, the Tribunal found that there was no material to show that advances were made to sister concerns out of the firm's own income and, therefore, the assessee was not entitled to deduction under Section 40(b)(iv) of the 1961 Act. Before concluding, we may mention that the importance of the judgment is the clarification which we were required to give in the context of deductions under Sections 30 to 38 to be read with the limitation prescribed under Section 40. Since there was some confusion with regard to .....

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..... ; and has held that the expenditure incurred shall be for carrying of the business and the assessee shall incur it in the capacity as a person carrying on the business. If the borrowing was made to meet the personal obligation and not the obligation of the business, such expenditure incurred by the assessee by way of payment of interest thereon was not for carrying on business and such expenditure can, by no stretch of imagination, be regarded as business expenditure. 18. In the case of Marolia Sons (supra), this Court has held as follows : Section 36(1)(iii) of the IT Act deals with the deduction on the amount of interest paid in respect of capital borrowed for the purposes of business or profession. It would be found from Clause (iii) of Sub-section (1) of Section 36 of the Act that three conditions must be established by an assessee for getting the benefit under the aforesaid clause : (1) interest should have been payable, (2) there should be a borrowing, and (3) capital must have been borrowed or taken for business purposes. If the capital borrowed is not utilized for the purposes of the business, the assessee will not be entitled to deduction .....

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