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TMI Blog2016 (3) TMI 816X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Authority, Mumbai. The only ground agitated by Shri M. Subrmanian, ld. counsel for the assessee, is with respect to disallowance of ₹ 22,47,100/- made u/s 36(1)(iii) of the Income Tax Act, 1961 (hereinafter the Act). 2. During hearing, the crux of argument advanced by the ld. counsel for the assessee is that the impugned issue is covered by the decision of the Tribunal in the case of assessee itself for assessment year 2007-08 (ITA No.6931/Mum/2010) and another decision of the Tribunal for A.Y. 2006-07 (ITA No.3313/Mum/2010). This factual matrix was consented to be correct by the ld. DR, Shri Aarsi Prasad. 2.1. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee company is in the business of manufacturing, assembling and trading in power equipments, electronic equipments, etc. The ld. Assessing Officer disallowed ₹ 22,47,100/- u/s 36(1)(iii) and assessed the income at ₹ 8,09,20,910/-. On appeal, before the ld. Commissioner of Income Tax (Appeals), the addition was affirmed, against which the assessee is in further appeal before this Tribunal. It is noted that for A.Y. 2006-07, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appeal filed by the assessee. When the matter came up before the Hon ble Supreme Court, the assessee contended that interest was to be allowed in full as making of investment in subsidiary company is a business purpose. The Hon ble Supreme Court appreciated the ambit of the expression for the purpose of business used in section 36(1)(iii) and held that the same should not be confused with the narrower expression for the purpose of earning income, profits or gains . In the light of such observation, the Hon ble Apex Court remitted the matter to the Tribunal for a fresh decision by considering deductibility or otherwise of interest after examining whether the funds advanced by the assessee holding company to its subsidiary company were used by the subsidiary company for some business purpose or not. 8. From the above judgment, it can be noticed that the ratio decidendi of the judgment is that interest on borrowed loans advanced to a sister concern without interest is allowable as deduction, if there is a commercial expediency in advancing such loan. To decide the commercial expediency in the hands of holding company, it is vital to examine the purpose for which the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the respective case . Thereafter, it has been observed that : For instance, if the directors of the sister concern utilize the amount advanced to it by the assessee for their personal benefit, obviously, it cannot be said that such money was advanced as a measure of commercial expediency . The gist of the judgment for allowing deduction on account of interest in the hands of holding company is the user of funds by the subsidiary for some business purpose . Unless business purpose is proved, the deduction cannot be allowed. That appears to be the sole reason for the Hon ble Supreme Court to remit the matter to the file of the Tribunal for considering the commercial expediency or business purpose in the hands of the subsidiary company. If the mere fact of advancing loan by holding company to subsidiary company had been sufficient enough for granting deduction of interest to the holding company, there was no need to restore the matter. The Hon ble Supreme Court, in such a situation, would have itself granted deduction of interest in the hands of holding company. 11. From the above judgment, it is manifest that the assessee has to prove the commercial expediency for advancin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of which the AO made disallowance of interest. It was also argued that income from operations of the company was ₹ 418.04 crores and the assessee had also raised capital of ₹ 7.90 crores, apart from receiving interest free deposit of ₹ 10.03 crores. It was, therefore, submitted before the first appellate authority that the balance-sheet of the assessee adequately depicted that there were enough interest free funds at its disposal for making investment. The ld. CIT(A) got convinced with the assessee s submissions and deleted the addition. Before the Tribunal, it was contended on behalf of the Revenue that the shareholders funds were utilized for the purchase of its assets and hence the assessee was left with no reserve or own funds for making investment in the sister concern. Thus, it was argued that the borrowed funds had been utilized for the purpose of making investment in the sister concern and the disallowance of interest was rightly called for. The Tribunal, on appreciation of facts, recorded a finding that the assessee had sufficient funds of its owns for making investment without using the interest bearing funds. Accordingly, the order of CIT(A) was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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