9911796707
TMI Blog1991 (10) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... to the deduction of interest of Rs. 1,97,616 while computing its income from business ?" The factual position as culled from the statement of case submitted by the Tribunal is as follows : The assessee is a limited company deriving income from business in the manufacture and sale of ferro-silicon. During the assessment year 1975-76, corresponding to the previous year ending on December 31, 1974, the assessee invested a sum of Rs. 14 lakhs in equity shares of company styled Indian Metals and Carbide Ltd. (hereinafter referred to as "the subsidiary company"). Apart from the above investment, a sum of Rs. 38,41,372 was advanced as loan on interest the rate of which was to be determined later. The assessee received fixed deposits from the pub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to show that the money lent to its subsidiary company represented loan capital or, for that matter, that it did not, and, in such circumstances, there being no conclusive evidence either way, the issue must be determined in favour of the subject. The Revenue preferred appeal before the Tribunal. On a consideration of the rival stands, the Tribunal was of the view that even if the assessee had its own assets, or generated huge profits during the relevant accounting year, it does not necessarily follow that only those assets or profits were utilised for the purpose of making investment or advances to its subsidiary company. According to it, obviously, the profits generated during the year were not necessarily in cash and the assets already ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unds. Learned counsel for the Revenue, however, submits that the burden was on the assessee to establish the source of the money invested in or advanced to the subsidiary company. The Tribunal having inferred from the factual aspects that the borrowed funds carrying interest were utilised, the disallowance is proper. Section 36(1)(iii) of the Act provides that, in computing the income chargeable under the head "Profits and gains of business or profession", deduction shall be allowed of the amount of interest paid in respect of capital borrowed for the purpose of business or profession. What is "borrowed money" has been construed by courts in England and by the Supreme Court in a number of cases. In Port of London Authority v. IRC [1922] 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in accordance with the taxing statute. The burden is on the assessee to prove that a particular class of income is exempt from taxation. (See H. E. H. Nizam's Religious Endowment Trust v. CIT [1966] 59 ITR 582 (SC). It was held in Nizam's case [1966] 59 ITR 582 (SC), that the burden is on the Revenue authorities to show that the income is liable to tax under the statute ; but the onus of showing that a particular class of income is exempt from taxation lies on the assessee. To earn the exemption, the assessee has to establish that his case clearly and squarely falls within the ambit of the exempting provisions of the Act. The principles equally apply in cases of deductions claimed. Therefore, the assessee was required to show that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pitalist control aspect is not very relevant. Strong reliance is placed on the accepted position that the assessee earned a profit of more than Rs. 70 lakhs during the year which was much more than the investment and advance. The substance of this argument could have been countenanced had the assessee placed materials to show that it had generated surplus in excess of the investment and advance, prior to such investment and advance. No material was placed in this regard by the assessee. Illustratively, it may be pointed out that, in a hypothetical case, an assessee can earn profits only after the date of investment and advance. It cannot be said that because, in the concerned assessment year, the profit was more than the investment and ad ..... X X X X Extracts X X X X X X X X Extracts X X X X
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