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Issues Involved:
The judgment involves the issue of disallowance of interest claimed by the assessee, the purpose of loans advanced to subsidiary companies, the nexus between borrowed funds and interest-free advances, and the application for reference of questions of law to the High Court. Disallowance of Interest Claimed by Assessee: The original assessment order disallowed Rs. 15,24,434 out of the total interest claimed by the assessee at Rs. 1,41,08,898 for the assessment year 1985-86. The Commissioner of Income-tax (Appeals) set aside the order and directed a fresh assessment. The Assessing Officer concluded that there was a direct nexus between the borrowings on which interest was paid and the interest-free loans advanced to subsidiary companies, leading to the disallowance. However, the appellate authority held that the borrowed funds were not utilized for the interest-free advances, supported by various reserves and profits of the assessee. Purpose of Loans Advanced to Subsidiary Companies: The Assessing Officer held that loans advanced to subsidiary companies did not serve the business purpose of the holding company unless proven with supporting evidence. The Commissioner of Income-tax (Appeals) disagreed with the Assessing Officer, stating that sufficient funds were available for the business of the subsidiary companies, and no disallowance should have been made from the interest paid to the bank. The appellate authority highlighted the importance of considering share capital, reserves, and profits generated by the company. Nexus Between Borrowed Funds and Interest-Free Advances: The Tribunal upheld the order of the Commissioner of Income-tax (Appeals) by dismissing the Revenue's appeal. It found that there was no nexus established by the Revenue between the funds withdrawn from cash credit and current accounts and the funds advanced as loans to subsidiary companies. The Tribunal emphasized that the interest-free loans were not from interest-bearing funds but from the company's own available funds, as supported by the books of account. Application for Reference of Questions of Law: The Revenue applied for reference of two questions of law to the High Court, contending that the Tribunal erred in not considering them as pure questions of law. The Tribunal rejected the application, stating that the questions did not arise from the order. The High Court dismissed the application, emphasizing that the Tribunal's conclusions were based on factual materials and no question of law was found to merit consideration. In conclusion, the High Court dismissed the application, stating that the Tribunal's findings were based on factual inferences supported by evidence, and no question of law arose. The Tribunal's conclusions were deemed to be pure findings of fact, and the application was rejected with no order as to costs.
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