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TMI Blog2021 (9) TMI 1033X X X X Extracts X X X X X X X X Extracts X X X X ..... to a related company, no disallowance of interest paid on borrowed funds could be made Also in the case of Hero Cycle [ 2015 (11) TMI 1314 - SUPREME COURT] has held that once it is established that there is nexus between expenditure and purpose of business, Revenue cannot justifiably claim to put itself in the arm chair of businessman or in position of Board of Directors and assume role to decide how much is reasonable expenditure having regard to circumstances of case. Where interest free advances made to a wholly owned subsidiary company, no disallowance of interest paid on borrowed fund could be made. Since, in the instant case, admittedly, the assessee has extended funds to its wholly owned subsidiary company for the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,669/-. During the course of assessment proceedings, the AO noted that the assessee company has advanced interest free loan of ₹ 2,49,50,000/- to its subsidiary company M/s Vinu Promoters Pvt. Ltd. out of its interest bearing funds received on account of unsecured loan from various companies. He observed that this loan was advanced in previous years and a sum of ₹ 2,52,00,000/- was outstanding against the company at the start of the year. The AO asked the assessee to explain as to why disallowance of interest expenses should not be made in view of the provisions of section 36(1)(iii) of the IT Act. The assessee explained that interest expenses are allowable as the funds were extended to wholly owned subsidiary for the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orandum of Association, copy of which is placed at page 60 of the paper book, the ld. Counsel drew the attention of the Bench to the main objects which are as under:- (A)THE MAIN OBJECTS TO BE PURSUED BY THE COMPANY ON ITS IN CORPORATON ARE:- 1. To acquire, taken on lease or under an arrangement, deal, trade and purchase, sell, construct, own, posses, manage, carry on business of Hotel, Guest House, Malls, Restaurant, Cafe, Tavern, place of refreshment/Entertainment, boarding and lodging, house keepers, licensed victuallers, wine/beer/brandy/whisky and spirit merchants, ice cream parlours, tea/coffee lounge, motels, snack bars, fast food courts and every type of eating house, purveyors, cinema and show on caterers for public amus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r in position of Board of Directors and assume role to decide how much is reasonable expenditure having regard to circumstances of case. 9. Referring to the decision of the Hon ble Bombay High Court in the case of CIT vs. Reliance Communications Infrastructure Ltd., reported in 260 CTR 159, he submitted that the Hon ble Bombay High Court in the said decision has held that where assessee for furthering its business had utilized borrowed funds for making investments in its subsidiary company and for making interest free advances to a related company, no disallowance of interest paid on borrowed funds could be made. 9.1 The ld. Counsel for the assessee also relied on the following decisions:- (i) SA Builders Ltd. vs. CIT (2007) 158 T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of the ld. Counsel that when the assessee has borrowed money and invested the same in its subsidiary companies with a view to acquire control of a new asset, such interest paid on borrowed capital has to be allowed u/s 36(1)(iii) of the Act. 13. I find merit in the above arguments of the ld. Counsel for the assessee. The Hon ble Delhi High Court in the case of Tulip Star Hotels Ltd. (supra) has held that where assessee is engaged in the business of owning, renting and managing hotels, borrowed money and invested the same in its subsidiary company with a view to acquire control of a new hotel, such interest paid on borrowed capital is allowable u/s 36(1)(iii) of the IT Act, 1961. 14. I find, the Hon ble Bombay High Court in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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