2006 (10) TMI 439 - HC - Income Tax

Summary

Issues involved: The judgment involves two main issues: 1. Whether the deduction of interest on excess levy sugar price was allowable, and 2. Whether the disallowance of interest on advances given to subsidiaries was justified.

Issue 1: Deduction of interest on excess levy sugar price:
The Income-tax Appellate Tribunal referred the question of whether the assessee's claim for deduction of interest on excess levy sugar price was allowable. The Tribunal observed that the amendment to the Levy Sugar Price Equalisation Fund Act specified the rates of interest applicable based on the date of excess realisation. The Tribunal directed the Assessing Officer to examine whether interest on excess sugar price had been credited to the fund account at the specified rate, and if not, the deduction should be allowed at the higher rate of 15 per cent. The Tribunal had consistently allowed deduction of interest on excess sugar price, leading to the conclusion in favor of the assessee.

Issue 2: Disallowance of interest on advances to subsidiaries:
For the assessment year 1983-84, the Assessing Officer disallowed interest of Rs. 3,60,000 on advances to subsidiaries, citing that no interest was charged due to losses in the companies. However, the CIT(A) and Tribunal, following earlier decisions, held that the addition of interest was not justified. The Tribunal referred to a previous order where it was established that the decision to forego interest was based on commercial expediency due to the weak financial position of the subsidiary companies. The Tribunal accepted the assessee's contentions and confirmed the CIT(A)'s order to delete the addition of interest.

In conclusion, the High Court of Allahabad, following precedent decisions, ruled in favor of the assessee on both issues. The Court held that interest on excess levy sugar price is an allowable deduction and that the disallowance of interest on advances to subsidiaries is not warranted when no interest was charged. The questions were answered in favor of the assessee, and no costs were awarded.