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TMI Blog2019 (3) TMI 263X X X X Extracts X X X X X X X X Extracts X X X X ..... - borrowed funds were not used to make investment in group entities - commercial expediency - HELD THAT:- Issue is covered by the Hon’ble Delhi High Court in the case of the assessee itself for assessment year 2010-11 wherein on identical facts, disallowance of interest was deleted. Investment in subsidiaries/ joint venture companies was one of the main objects of the respondent-assessee and hence expenditure in the nature of interest incurred for the purpose of making investments cannot be disallowed under Section 36(1)(iii) - Decided in favour of assessee - ITA No. 1425/Del/2016 - - - Dated:- 28-2-2019 - Sh. Bhavnesh Saini, Judicial Member And Sh. N. S. Saini, Accountant Member For the Assessee : Sh. R. S. Singhvi, CA And Sh. Sat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in assessment year 2008-09 and the DR has also agreed with the above submission of the AR of the assessee. 7. We find that the Tribunal has held as under: We find that quasi capital can be said to be a category of debt taken by a company which in the context of transfer pricing issues is not only an instrument of legitimate funding but is also a hybrid instrument pre-stipulated to be a loan for a transitory period, the economic purpose of which is a future capital investment in all its forms including contribution to equity or subscription of capital and cannot be justifiably be treated as a debt simplicitor. Reliance has also been placed on the case of Bharti Airtel Ltd. (supra) in (Copy of which has been placed at book pages ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that borrowed funds were not used to make investment in group entities. 10. The facts of the case are that from the balance sheet of the assessee, the Assessing officer observed that the assessee has made investment in shares of group companies amounting to ₹ 1240,62,57,500/- on which no income in the shape of dividend or any other income was earned. He observed that the company has taken secured and unsecured loans and paid interest of ₹ 27,11,68,479/-. Thus, he observed that the assessee has utilized interest bearing fund for making investment in group companies. Therefore, he made the proportionate disallowance of interest of ₹ 7,23,03,338/- which was confirmed by the DRP. 11. Before us, the AR of the assessee su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )held as follows:- 24. In our opinion, the decisions relating to Section 37 of the Act will also be applicable to Section 36(1)(iii) because in Section 37 also the expression used is for the purpose of business . It has been consistently held in decisions relating to Section 37 that the expression for the purpose of business includes expenditure voluntarily incurred for commercial expediency, and it is immaterial if a third party also benefits thereby. 25. Thus in Atherton v. British Insulated Helsby Cables Ltd.[(1925) 10 TC 155 : 1 KB 421 : 132 LT 288 (CA)] it was held by the House of Lords that in order to claim a deduction, it is enough to show that the money is expended, not of necessity and with a view to direct and imm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstance, if the Directors of the sister concern utilise 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. However, money can be said to be advanced to a sister concern for commercial expediency in many other circumstances (which need not be enumerated here). However, it is obvious that a holding company has a deep interest in its subsidiary, and hence if the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the assessee would, in our opinion, ordinarily be entitled to deduction of interest on its borrowed loans. The Assessing Officer had referred and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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