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TMI Blog2002 (10) TMI 56X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the borrowings by the assessee kept as application money in Tropical Fruits were for use of the money for the assessee's business and thus the only conclusion of law would be that the interest thereon was deductible as revenue expense by the assessee. - The order of the Tribunal is set aside - - - - - Dated:- 8-10-2002 - Judge(s) : AJOY NATH RAY., MS. INDIRA BANERJEE. JUDGMENT AJOY NATH RAY J.-Three assessment years are involved in this appeal under section 260A which we have entertained. Those are assessment years 1991-92, 1992-93 and 1993-94. The facts which give rise to the appeals are briefly as follows. The assessee-partnership firm, got into a joint venture collaboration agreement with a company of U.S.S.R., at a time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f events proved that the Russian collaborator was unable to contribute to the share capital of Tropical Fruits in excess of Rs. 38 crores. The corresponding 60 per cent. of this was matched by the assessee-company and that would be approximately Rs. 54 crores. It would be seen from the above that although the application money for warded by the assessee was Rs. 2.21 crores, only 54 crores out of this became actually converted into share capital. Tropical Fruits did good business thereafter. It is clear from the records that the assessee even got its own product exported through Tropical Fruits at much profit. The Russian party requested for return of its unconverted money, but it was asked for in driblets. The records show that at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e capital contributed was out of borrowed funds raised by the assessee-firm for its own business purpose. The blocking of the application money without charging any interest from Tropical Fruits was as per the agreement and understanding between the assessee and its Russian associate. There was no fraud or underhand diversion of funds involved. In these circumstances, the Tribunal came to the conclusion that nothing had been brought on record to show why the assessee-firm should have kept its money blocked with Tropical Fruits without charging any interest. Since the partners of the assessee were interested in Tropical Fruits, interest on borrowed capital was disallowed to the extent it lay with Tropical Fruits without earning any interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw, the interest-free idling of the moneys in the joint venture company being far too well explained by the assessee, in connection with the disintegration of the USSR, and the other partner in the joint venture company being unable to contribute to share capital as originally envisaged?" The above question is for the first of the said three assessment years, and as regards the two subsequent ones, only the money figure will be different, and those will be Rs. 21,62,160 for the assessment year 1992-93 and Rs. 13,52,160 for the assessment year 1993-94. The only section which we need consider for our purposes is section 36, sub-section (1)(iii), of the Income-tax Act, 1961, and that runs as follows: "36. (1) The deductions provided for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of this case we would have to formulate other and different questions of law too. We have not made any such formulation. We have proceeded on the simple and ordinary legal basis, which must be assumed to have been known to the Tribunal, that a business purpose is for the carrying on of the business, and such purpose in capacity as a businessman; the expenses must not be of a private or domestic nature; there must be no dishonesty and no underhand attempts involved at motivated diversion of funds so as to get an otherwise unwarranted deduction of interest on borrowed funds. This is the simple law and nobody could have any dispute with these basic propositions. After hearing both the sides carefully and at length we are of the final ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ell-settled, as to what is borrowing for business purposes, the facts as given above, in our opinion, could only lead to one conclusion of law, which is that the borrowings by the assessee kept as application money in Tropical Fruits were for use of the money for the assessee's business and thus the only conclusion of law would be that the interest thereon was deductible as revenue expense by the assessee. As such the question is answered in favour of the assessee in respect of each of the three assessment years. The order of the Tribunal is set aside for each of the said assessment years and the order of the Commissioner of Income-tax (Appeals) is restored. We would have allowed costs to the assessee in this case but in view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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