2016 (11) TMI 1665 - HC - Income Tax

Interest on the loan taken which is utilised for giving advances to the sister concerns - Tribunal held that the interest deduction claimed by the assessee is an allowable deduction on the premise that the loan was utilised by the assessee for giving advance to the sister concern - HELD THAT - As decided in M/S. GOLF VIEW HOMES LTD 2016 (11) TMI 1664 - KARNATAKA HIGH COURT activity of the assessee was also of acquiring property rights in sister concers, any advance given by the assessee them is to be treated for acquiring property rights and once it is treated as for acquiring property rights may be of a sister concern, it would be an allowable deduction under section 36 of the Income-tax Act, since it is for the business activity. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the interest deduction claimed by the assessee is an allowable deduction.
2. Whether the Tribunal's finding on the interest deduction is perverse.

Issue-wise Detailed Analysis:

1. Allowability of Interest Deduction:
The primary issue in these appeals is whether the interest deduction claimed by the assessee is allowable. The assessee, engaged in the real estate business, claimed a deduction for interest paid on loans taken from banks, which were subsequently advanced to its sister concerns, Diamond District and Platinum City. The Assessing Officer disallowed this interest deduction, and the Commissioner of Income-tax (Appeals) upheld this decision, stating no proof was provided that the funds were used for business purposes.

However, the Tribunal found that the payments made by the assessee to its sister concerns were for acquiring property rights, a part of its real estate business. The Tribunal noted that the Commissioner of Income-tax (Appeals) had recorded that the assessee's activities included constructing buildings and acquiring property rights. The Tribunal held that these payments were not a diversion of funds for non-business purposes and thus, the interest should be allowed as a deduction under section 36 of the Income-tax Act. The Tribunal directed the Assessing Officer to allow the interest paid to the banks as a business expenditure and to set off any resultant loss against property income under section 71 of the Act.

2. Perversity of Tribunal's Finding:
The Revenue contended that the Tribunal's finding was perverse, arguing that the Tribunal misconstrued the order of the Commissioner of Income-tax (Appeals) and failed to consider that no proof was produced for the advances given to the sister concerns. The Revenue asserted that the Tribunal should have scrutinized the disallowance of the interest claim more thoroughly.

The Tribunal's decision was based on the undisputed fact that the payments to the sister concerns were for acquiring property rights, an integral part of the assessee's business. The High Court emphasized that the Tribunal's view was reasonable and not perverse, as the finding of fact by the Commissioner of Income-tax (Appeals) was not disputed by the Department. The Court noted that the Tribunal’s interpretation aligned with the business activities of the assessee and that the Tribunal's reliance on the Commissioner’s findings was justified.

The Court concluded that the Tribunal's finding was not perverse, as it was a possible reasonable view supported by the material on record. The High Court held that the Tribunal's decision to allow the interest deduction was correct and dismissed the Revenue's appeals, stating that the finding of the Tribunal could not be said to be perverse.

Conclusion:
The High Court dismissed the Revenue's appeals, affirming that the interest deduction claimed by the assessee was allowable and that the Tribunal's finding was not perverse. The decision was based on the consistent and undisputed findings that the advances to sister concerns were for acquiring property rights, a legitimate business activity of the assessee.