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TMI Blog2001 (8) TMI 273X X X X Extracts X X X X X X X X Extracts X X X X ..... Janapriya Hospitals Corporation Ltd. (now known as Duncan Goenka Hospitals Ltd.) towards contribution to their equity shares capital as co-promoters with its holding company Duncans Industries Ltd. During the year under consideration the allotment of aforesaid shares had not been made and accordingly the assessee-company had shown this amount under the head "Advances against Investments". The break-up of the funds utilized for this advance of Rs. 1,20,50,000 was as under: 1. Out of loan from the Peerless General Finance and Investment Co. Ltd. Rs. 45,00,000 2. Out of sale proceeds of shares and interest receipts Rs. 75,00,000 --------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowable as business expenditure. In the immediately preceding year also, interest was disallowed on this point which was confirmed in appeal by the CIT(A). On the facts and in the circumstances, interest payment of Rs, 7,20,000 to PGFI is disallowed and added to the total income." 4. Aggrieved by the above order, the assessee-company approached to the CIT(A). The CIT(A) confirmed the disallowance of interest payment and further fortified the Dy. CIT's action by observing that the interest-free advance given to sister concern was not for business purposes, therefore, interest payment, proportionate to the said advance was not an expenditure of a business nature. The CIT(A) also relied on his order for the earlier year in which it was he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Duncan Goenka Hospitals Ltd., towards shares capital, when there was no scope for charging such interest. Reliance was placed on the order in ITA No. 2676/Cal/1995. 7. On the other hand, the learned Departmental Representative strongly relied on the orders of the lower authorities and argued that object of the assessee-company was not to make interest-free advance by taking loan on interest, and that no income was generated out of the aforesaid investment in shares. Therefore, it was contended that no deduction under s. 36(1)(iii) in respect of proportionate advance out of interest-bearing loans is admissible. 8. We have heard erudite arguments of both the learned representatives, gone through the orders of the authorities below, carefu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mstances and by applying the test propounded by the decided cases. 10. The investment having been made in the course of the business, the fact that no income had been generated out of the same during the relevant previous year, should not result in disallowance of interest attributable to the capital borrowed for the purpose of making the alleged investment. In the course of the business the assessee may be required to park and earmark the funds in investment as a matter of prudent business decision. In the instant case it was essentially a business decision to invest in the shares of Janapriya Hospital Corporation Ltd., in accordance with the main object clause of assessee-company. As per the memorandum and articles of association, such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rievance to the Peerless Company, but that will not be a valid reason for disallowance of the interest under s. 36(1)(iii), provided the funds had been used for the purpose of the business in its regular course. Interest paid on borrowed capital is an allowable deduction under s. 36(1)(iii), provided it has been used for the purpose of the business, irrespective of the fact that it has been diverted from one business purpose to another. Furthermore, while finally arriving at the taxable/net income of business, all the inputs, i.e., the expenses including interest paid on capital borrowed for purpose of the business, are to be taken into consideration. While doing so it is to be seen whether the assessee borrowed capital for purpose of the b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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