TMI Blog2017 (2) TMI 221X X X X Extracts X X X X X X X X Extracts X X X X ..... ely the sister company may function properly, the assessee being holding company would also be benefitted. Thus, the loan advanced to sister companies was for commercial expediency and not for any charity, sentimental or personal reasons. We therefore, answer the question in favour of assessee and hold that assessee was entitled for deduction of interest under section 36(1)(iii) and the view taken by the Tribunal otherwise is not correct. - Decided in favour of assessee - Income Tax Reference No. 2 of 2010 - - - Dated:- 9-8-2016 - Sudhir Agarwal And Kaushal Jayendra Thaker, JJ. For the Assessee : Vinod Upadhaya assisted by R. S. Agrawal, Advocates For the Commissioner : Shubham Agarwal and CSC JUDGMENT 1. Heard Sri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter referred to as CIT(A) ) on the ground that the assessee was not a financing company, had it not advanced loan, money could have been available to the assessee for its own business purpose and to that extent it may not have borrowed from banks. It disallowed the difference of interest under section 36(1)(iii) of Act 1961, and upheld by the Tribunal also. 5. From the record, we find that it is not the case of the Revenue authorities that loan advanced to sister subsidiary company was for non business purpose. The Tribunal has recorded a finding concurrent with the Commissioner of Income-tax (Appeals) that no direct link could be established between borrowing and lending and it is also not the case that loan was not advanced for comme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the purpose of earning profits and relied on its earlier decisions in 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). It held that if borrowed amount is donated for sentimental or personal reasons and not on the ground of commercial expediency, interest thereon would not be allowed under section 36(1)(iii) of the 1961 Act, but if it is advanced to a third party for commercial expediency it must be allowed and for that purpose reliance was placed on Madhav Prasad Jatia v. CIT [1979] 118 ITR 200 (SC). The court referred to the following expression discussing scope of commercial expediency and said (page 8 of 288 ITR) : The expression 'comme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present case, financial condition of the sister concern was not good and to help those, for their smooth running, loan was advanced and a lesser rate of interest was charged. Both the sister companies are subsidiary of the assessee and there is nothing per se adverse. For the welfare and proper functioning of the sister companies, the assessee in its wisdom, if decided to advance loan so that ultimately the sister company may function properly, the assessee being holding company would also be benefitted. Thus, the loan advanced to sister companies was for commercial expediency and not for any charity, sentimental or personal reasons. 13. We therefore, answer the question in favour of assessee and hold that assessee was entitled for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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