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TMI Blog2005 (6) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... e transaction between the assessee and the firm alleged to be a firm of relatives, which might have some impact on the transaction. In case we find that it is not a firm of relatives, the answer would be simple and would not assume a different complexion, as it would have if the firm is found to be a firm of relatives. The other question requires to be examined in this context is that whether this interest-free advances were given for the purpose of business entitling the assessee to the benefit of section 36(1)(iii) of the Income-tax Act, 1961. We may now examine these questions as hereafter. Whether the recipient of interest-free loan is a firm of relatives: The Assessing Officer had found that the firm to which interest-free loan was advanced was constituted by the relatives of the directors of the assessee. But the relatives as has been explained or spelt out by the Assessing Officer shows that this relations did not come within the definition of relatives as defined in section 2(41) of the Income-tax Act, 1961. Therefore, the first point that has been urged by Mr. Banerjee, that the firm with which the assessee was dealing was a firm of the relatives, cannot be sustained. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an assessee in respect of capital borrowed for the purposes of the business or profession. Therefore, we need to examine whether the interest payable on the capital borrowed as mentioned above would be eligible for deduction under section 36(1)(iii). The eligibility depends on three factors, viz., one is that the borrowing is a capital borrowed and the second that such capital was borrowed for the purpose of business and the third that interest is payable on such capital borrowed. These three ingredients are to be satisfied in order to claim deduction under section 36(1)(iii). In this case that the interest is paid on the borrowing is not in dispute. That the borrowing was a capital is also not in dispute. What is disputed in this case is that this borrowed capital was not utilized for the purpose of the assessee's business. Learned counsel for the Department, Mr. Shibdas Banerjee, senior counsel, pointed out that this borrowing was siphoned off to the firm MCAP. Therefore, it is not a capital borrowed for the purpose of the business. According to him, it was borrowed for the purpose of helping the firm. It was not utilized for the purpose of the business. We do not find that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrect. Dr. Pal pointed out from para. 6 of the decision by the Commissioner (Appeals) that out of the interest-free advance of Rs. 165 lakhs, MCAP supplied cashew-nut kernels to the assessee-company between the period December, 1983, and June, 1984 amounting to Rs. 91.45 lakhs out of the total cashew-nut export of the assessee of Rs. 120.75 lakhs for the period ended June 30,1984, which accounted for 70.45 per cent, of the total cashew-nut kernels exported by the assessee in that year. At para. 9 the Commissioner (Appeals) found that the Assessing Officer had misstated the facts in his order. This finding was affirmed by the learned Tribunal at para. 7 of its order where it had found that out of the total export of the cashew-nut kernels of Rs. 129 lakhs in the assessment year 1985-86, an extent of Rs. 91 lakhs was supplied by MCAP to whom advance was made by the assessee. Thus, the finding, which is a finding of fact, becomes a concurrent finding of fact concluded by the Commissioner (Appeals) and the learned Tribunal. Mr. Banerjee attempts to point out that this concurrent finding is based on no materials and as such is perverse. But Mr. Banerjee has not been able to show from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port Mr. Banerjee in his contention. On the other hand, Dr. Pal relied on the decision in CIT v. Gillanders Arbuthnot and Co. Ltd. [1982] 138 ITR 763 (Cal). There it was held that the assessee was engaged in the business as a holding company of financing its subsidiaries and, therefore, the money lent to such subsidiaries was held to be lent and advanced in the course of its business. In the present case, MCAP might be a partnership firm constituted of some near relations outside the purview of the definition of relatives under section 2(41), yet the advance was made for the purpose of its business for exporting cashew kernels in order to secure consistent supply of quality cashew-nuts for export business of the assessee, a fact similar to the facts considered in the said case. Dr. Pal then relied on CIT v. Gillanders Arbuthnot and Co. Ltd. [1992] 195 ITR 331 (Cal). There also the assessee-company had financed one Burlow and Co. which in turn had financed various other companies managed by Gillanders Arbuthnot and Co. and after Burlow and Co. was taken over by Gillanders Arbuthnot and Co., the balance-sheet of Burlow and Co., the advances given by Gillanders Arbuthnot and Co. a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king credit was enhanced from Rs. 0.25 crores to Rs. 1.75 crores by the bank; but from the accounts, it appears, as was found by the learned Tribunal, that the total sale proceeds of the relevant financial year was Rs. 114.08 crores and that the entire sale proceeds used to be deposited in the mixed account and the advance was also granted from the mixed account. Therefore, there were sufficient funds for making advance of Rs. 1.65 crores out of total transaction of Rs. 114.08 crores. If there is surplus and the advance is made out of the mixed fund, in that event, it cannot be said that the amount borrowed as capital from the bank was advanced, in order to deny the benefit of section 36(1)(iii) in the present case. If it is established that the payment was made from the mixed account and the assessee had sufficient funds then it is to be presumed that the payment was made out of the assessee's own fund and that the borrowed capital was not siphoned out. Dr. Pal relied on other decisions in Woolcombers of India Ltd. v. CIT [1982] 134 ITR 219 (Cal) at page 227; CIT v. Samuel Osborn (India) Ltd. [1982] 135 ITR 699 (Cal); Indian Explosives Ltd. v. CIT [1984] 147 ITR 392 (Cal) and Al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvances had supplied Rs. 19.90 crores of materials out of total export of cashewnut of Rs. 22.61 crores, Rs. 11.52 crores out of Rs. 13.22 crores, Rs. 16.75 crores out of Rs. 20.86 crores, Rs. 17.95 crores out of Rs. 42.39 crores, respectively. Thus, on the facts, it had found that there was regular course of business between the assessee and the MCAP and the advances were made to MCAP in the regular course of business. In other words, such advances were made in the course of business for commercial expedience for the purpose of business. These findings have not been proved to be perverse. Therefore, the same principle as enunciated above would apply in respect of these relevant assessment years involved in the respective orders of the learned Tribunal. Conclusion: From the above discussion, we find in relation to each assessment years involved in this appeal that the recipient of interest-free loan was not a firm of relatives; the advance was made for the purpose of business within the meaning of section 36(1) (iii); that there was regular course of business between the assessee and the firm; and that the advances were made to MCAP in the regular course of business; such adv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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