TMI Blog2024 (2) TMI 226X X X X Extracts X X X X X X X X Extracts X X X X ..... could be a revenue expenditure. The Court was pleased to uphold the findings of the Tribunal that it would amount to a revenue expenditure even if Assessee was not successful in obtaining the bid. No error in the conclusions arrived at by the ITAT. Interest on the share application money forwarded to the subsidiary company - whether it is allowable on the account of commercial expediency? - as per revenue intention of investment in the subsidiary company was to retain/increase the controlling interest therein, which is the capital investment and, therefore, the corresponding interest expense on it is not allowable - Tribunal, agreed with the finding arrived at by the CIT(A) that the amount given by Assessee to its subsidiary was for the purpose of business of Assessee - HELD THAT:- Tribunal has accepted the factual finding of the CIT(A) that Assessee being engaged in the business of infrastructure development management and finance in addition to its amusement park and water park , has set up the subsidiary to which these funds were provided to take up the infrastructure project on behalf of Assessee. A factual finding has been arrived at that the finance provided to the wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmed disallowance of Rs. 13,62,536/- that was made by the AO. The AO also had disallowed certain expenditure that Assessee had incurred in its business amounting to Rs. 2,76,76,530/- being amount incurred for making and filing bids for modernization of Mumbai and Delhi Airports. The AO was of the opinion that the expenses being pre-commencement expenses for a project considered as new line of business cannot be shown in the profit and loss account as exceptional item. Assessee preferred an appeal before the CIT(A) and the CIT(A) concurred with this view of the AO. Assessee also filed an appeal. There were, therefore, three appeals filed before the ITAT, one by Assessee for Assessment Year ( AY ) 2006-2007 and two by Revenue for AY 2006- 2007 and AY 2007-2008. 2. The ITAT allowed the appeal filed by Assessee and dismissed both the appeals filed by the Revenue by a common order pronounced on 11th January 2017, which is impugned in this appeal filed under Section 260A of the Act. 3. The following three substantial questions of law are proposed: A. 1. Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT has erred in law in allowing the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether the Tribunal was justified in holding that the preliminary expenses incurred by Assessee prior to the commencement of its business activity could be a revenue expenditure. The Court was pleased to uphold the findings of the Tribunal that it would amount to a revenue expenditure even if Assessee was not successful in obtaining the bid. 5. Therefore, we find no error in the conclusions arrived at by the ITAT as regards the first question of law proposed. 6. As regards the second substantial question of law, the Tribunal, on facts, agreed with the finding arrived at by the CIT(A) that the amount given by Assessee to its subsidiary was for the purpose of business of Assessee. The Tribunal has accepted the factual finding of the CIT(A) that Assessee being engaged in the business of infrastructure development management and finance in addition to its amusement park and water park , has set up the subsidiary to which these funds were provided to take up the infrastructure project on behalf of Assessee. A factual finding has been arrived at that the finance provided to the wholly owned subsidiary was for its business of infrastructure and is used for that purpose. It has ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the provision is wider in scope than the expression for the purpose of earning income, profits or gains, and this has been the consistent view of this Court. 22. 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. 23. 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. 24. Thus in Atherton v. British Insulated Helsby Cables Ltd. (1925) 10 TC 155 (HL), it was held by the House of Lords that in order to claim a dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the expression for the purpose of business is wider in scope than the expression for the purpose of earning profits vide CIT V. Malayalam Plantations Ltd. (1964) 53 ITR 140, CIT V. Birla Cotton Spinning Weaving Mills Ltd. (1971) 82 ITR 166 etc. 31. The High Court and the other authorities should have examined the purpose for which the assessee advanced the money to its sister concern, and what the sister concern did with this money, in order to decide whether it was for commercial expediency, but that has not been done. 32. It is true that the borrowed amount in question was not utilized by the assessee in its own business, but had been advanced as interest free loan to its sister concern. However, in our opinion, that fact is not really relevant. What is relevant is whether the assessee advanced such amount to its sister concern as a measure of commercial expediency. 33. Learned counsel for the Revenue relied on a Bombay High Court decision in Phaltan Sugar Works Ltd. v. Commissioner of Wealth-Tax (1994) 208 ITR 989 in which it was held that deduction under Section 36(1) (iii) can only be allowed on the interest if the assessee borrows capital for it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. (emphasis supplied) 8. As regards the third substantial question of law proposed, we find that it was not even argued before the Tribunal. Moreover, ITAT had only noted that the provisions of Rule 8D shall be applicable from AY 2008-2009 as held in the case of Godrej and Boyce Manufacturing Company Limited v. DCIT (328) ITR 81 of this Court. There is nothing to indicate that the Bombay High Court did not give this finding. In fact Ms. Gokhale says that the Court in Godrej and Boyce (supra) has actually held that provisions of Rule 8D shall be applicable from AY 2008-2009 only. 9. Therefore, in our vi ..... 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