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S. A. Builders Ltd. .. Petitioner vs Commissioner Of Income Tax (Appeals) ... on 14 December, 2006
cites
Madhav Prasad Jatia vs Commissioner Of Income Tax, U.P., ... on 17 April, 1979
Thus, the ratio of Madhav Prasad Jantia's case (supra) is that the
borrowed fund advanced to a third party should be for commercial
expediency if it is sought to be allowed under Section 36(1)(iii) of the Act.
Phaltan Sugar Works Ltd. vs Commissioner Of Wealth-Tax. on 27 August, 1993
Learned counsel for the Revenue relied on a Bombay High Court
decision in Phaltan Sugar Works Ltd. Vs. Commissioner of Wealth-Tax
(1994) 208 ITR 989 in which it was held that deduction under Section
36(1)(iii) can only be allowed on the interest if the assessee borrows capital
for its own business. Hence, it was held that interest on the borrowed
amount could not be allowed if such amount had been advanced to a
subsidiary company of the assessee. With respect, we are of the opinion that
the view taken by the Bombay High Court was not correct. The correct view
in our opinion was whether the amount advanced to the subsidiary or
associated company or any other party was advanced as a measure of
commercial expediency.
Commissioner Of Income-Tax, Kerala vs Malayalam Plantation Ltd on 10 April, 1964
It has been repeatedly held by this Court that the expression "for the
purpose of business" is wider in scope than the expression " for the purpose
of earning profits" vide CIT vs. Malayalam Plantations Ltd. (1964) 53 ITR
140, CIT vs. Birla Cotton Spinning & Weaving Mills Ltd (1971) 82 ITR
166 etc.
The High Court and the other authorities should have examined the
purpose for which the assessee advanced the money to its sister concern, and
what the sister concern did with this money, in order to decide whether it
was for commercial expediency, but that has not been done.
Commissioner Of Income Tax, West Bengal vs Birla Cotton Spinning & Weaving Mills ... on 17 August, 1971
It has been repeatedly held by this Court that the expression "for the
purpose of business" is wider in scope than the expression " for the purpose
of earning profits" vide CIT vs. Malayalam Plantations Ltd. (1964) 53 ITR
140, CIT vs. Birla Cotton Spinning & Weaving Mills Ltd (1971) 82 ITR
166 etc.
The High Court and the other authorities should have examined the
purpose for which the assessee advanced the money to its sister concern, and
what the sister concern did with this money, in order to decide whether it
was for commercial expediency, but that has not been done.
The Income Tax Act, 1961
Commissioner Of Income Tax, Madrasand ... vs M/S Dalmia Cement (Bharat) Ltd on 16 August, 1995
We agree with the view taken by the Delhi High Court in CIT vs.
Dalmia Cement (Bhart) Ltd. (2002) 254 ITR 377 that once it is established
that there was nexus between the expenditure and the purpose of the
business (which need not necessarily be the business of the assessee itself),
the Revenue cannot justifiably claim to put itself in the arm-chair of the
businessman or in the position of the board of directors and assume the role
to decide how much is reasonable expenditure having regard to the
circumstances of the case. No businessman can be compelled to maximize
its profit. The income tax authorities must put themselves in the shoes of the
assessee and see how a prudent businessman would act. The authorities
must not look at the matter from their own view point but that of a prudent
businessman. As already stated above, we have to see the transfer of the
borrowed funds to a sister concern from the point of view of commercial
expediency and not from the point of view whether the amount was
advanced for earning profits.
Section 28 in The Income Tax Act, 1961 [Entire Act]
Eastern Investments Ltd vs Commissioner Of Income-Tax,West ... on 4 May, 1951
The above test in Atherton's case (supra) has been
approved by this Court in several decisions e.g. Eastern Investments Ltd.
vs. CIT (1951) 20 ITR 1, CIT vs. Chandulal Keshavlal & Co. (1960) 38
ITR 601 etc.
In our opinion, the High Court as well as the Tribunal and other
Income Tax authorities should have approached the question of allowability
of interest on the borrowed funds from the above angle. In other words, the
High Court and other authorities should have enquired as to whether the
interest free loan was given to the sister company (which is a subsidiary of
the assessee) as a measure of commercial expediency, and if it was, it should
have been allowed.