1993 (9) TMI 14 - HC - Income Tax

Summary

Issues involved:
The judgment addresses three questions of law referred by the Income-tax Appellate Tribunal under section 256(1) of the Income-tax Act, 1961.
1. Whether the claim of the company to deduct interest on usance bills drawn under the IDBI Scheme as business expenditure was rightly rejected.
2. Whether the Tribunal was justified in holding that no appeal lies against the levy of interest under section 215 of the Income-tax Act.
3. Whether the interest on loans borrowed for advancing to a subsidiary company was allowable under section 36(1)(iii) of the Income-tax Act, 1961.

Question 1 - Deduction of Interest on Usance Bills:
The assessee borrowed money under the IDBI Scheme for machinery purchase but used it for buying shares in a foreign company. The claim to deduct interest on the bills of exchange was disallowed by the Income-tax Officer, upheld by the Appellate Assistant Commissioner and the Tribunal. The Tribunal concluded that interest paid on a loan used for purchasing shares cannot be deducted from business income. The court agreed with the Tribunal's decision, ruling in favor of the Revenue and against the assessee.

Question 2 - Appeal Against Levy of Interest:
The court referenced a previous decision to answer this question, stating that the issue is covered by a specific case law, and therefore, the appeal lies in favor of the assessee and against the Revenue.

Question 3 - Allowability of Interest on Loans:
Similarly, the court referred to another case law to address this question, stating that the interest on loans borrowed for advancing to a subsidiary company was allowable under section 36(1)(iii) of the Income-tax Act, 1961. Consequently, the court ruled in favor of the Revenue and against the assessee.

Conclusion:
The court upheld the decisions of the Tribunal on all three questions. The first question regarding the deduction of interest on usance bills was answered in favor of the Revenue. The second and third questions were answered based on previous case laws, favoring the assessee and the Revenue, respectively. No costs were awarded in this case.