TMI Blog1998 (2) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... Newspapers (Madurai) P. Limited, is a sister concern of Indian Express Newspaper (Bombay) (Private) Limited. While making the assessment for the year 1971-72, the Income-tax Officer disallowed a sum of Rs. 86,300 claimed as a deduction by the assessee under section 36(l)(iii) of the Act under the head "Amount of interest paid in respect of capital borrowed for the purpose of the business or profession". The reasons given for the disallowance are set out separately by the Assessing Officer in annexure B to the draft assessment orders. It must be mentioned here that the original assessment for the year was initially completed on February 28, 1974, but that assessment was set aside by the Appellate Assistant Commissioner on February 9, 1978 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... funds during that year and the "investment" made in Ace Investments Limited was out of borrowed funds, "admittedly." It was also noticed that the subsidiary company had no separate office of its own, as its address is the same as that of the assessee, that the subsidiary did not employ any staff, and its books of account were written by the staff of the assessee. The subsidiary company did not have any transactions other than the lending of the sum of Rs. 10 lakhs made available to it by the assessee, to the company at Bombay to which the assessee had been systematically diverting its borrowed funds to enable the associate company at Bombay to meet the cost of construction of a building owned by it. It was also found by the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It further observed that the arrangement could not be ignored, even assuming that it was intended to secure tax advantage, unless there was fraud or that the transaction was only a paper transaction not intended to be carried out. The Tribunal was of the view that there was no material to hold that it was a paper transaction or was a fraud. The Tribunal did not advert to what had been noticed by the Income-tax Officer in the draft assessment order, the contents of which has already been adverted to in the earlier paragraphs of our order. Learned counsel for the Revenue contended before us that the amount of Rs. 10 lakhs made available to the Indian Express Newspapers (Bombay) (Private) Limited through the newly created subsidiary Ace Inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see-company had income during the year, even though the Income-tax Officer had stated that "admittedly" the assessee had no surplus from which to make this investment. Counsel referred to the fact that the assessee had property income of Rs. 1,17,629 during that year and had business income of Rs. 22,67,729 although after the adjustment of its share of the loss in a firm, in which it was a partner, the year had ended with a net loss of Rs. 7,21,542, The draft assessment order, however, shows that the business income reported by the assessee was only Rs. 8,51,151, that income having been derived from the printing and publication of newspapers and share trading. It was only on account of various disallowances that the income for the purpose o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irectly, but was shown as having been invested in the subsidiary company is not decisive of the true character of the transaction. The mere fact that Ace Investments Ltd., is a distinct legal entity does not by itself establish that the purported investment was a genuine investment, which the company had made for securing benefits to itself by way of trading or carrying on business through that subsidiary. We are concerned with the sum of Rs. 10 lakhs, interest on which had been disallowed by the Income-tax Officer. That sum of Rs. 10 lakhs, as noticed earlier was paid to the Bombay company on the same day on which it was paid to Ace Investments Ltd. Though Ace Investments is purported to charge interest in the first year, subsequently, no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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