IT : Once it is
established that there is nexus between the expenditure and the purpose of
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 to decide how much
is reasonable expenditure having regard to the circumstances of the case.
Facts
(a)
|
|
Assessee-company had taken a loan at interest rate of 18% p.a.
Out of such borrowed funds it had transferred certain sum to its
subsidiary-company without any interest. It had claimed deduction of interest
under Section 36(1)(iii).
|
(b)
|
|
Assessing Officer ('AO') disallowed interest on borrowed sum
on the ground that such funds
were not used for business purposes. |
(c)
|
|
The CIT (Appeals) set aside the order of AO. Further, the ITAT
also upheld the order of CIT(A). However, the appeal of revenue was allowed by
the High court.
|
The Supreme Court
held as under:
(1)
|
|
A perusal of the order passed by the High Court would reveal
that the High Court had not discussed the facts which were established on
record. On the other hand, the High Court had on basis of its own judgment in
case of CIT v. M/s Abhishek Industries Ltd [2006] 156 TAXMAN 257
(PUNJ. & HAR.), held that when loans were taken from the banks
on which interest was paid for the purposes of business, the interest thereon
could not be claimed as business expenditure. Such approach was clearly
faulty in law and could not be sustained.
|
(2)
|
|
The Court agreed with the views taken by the Delhi High Court
in case of CIT v. Dalmia Cement (P.) Ltd. [2002]
121 Taxman 706 (Delhi)wherein the High Court had held that once it is
established that there is nexus between the expenditure and the purpose of
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 how much is
reasonable expenditure having regard to the circumstances of the case.
|
(3)
|
|
Applying the aforesaid ratio to the facts of the instant case,
it was manifest that the advance to subsidiary-company became imperative as a
business expediency in view of the undertaking given to the financial
institutions by the assessee to the effect that it would provide additional
margin to subsidiary-company to meet the working capital for meeting the cash
loses.
|
(4)
|
|
Thus, order of High Court was to be set-aside.
|
[2015] 63 taxmann.com 308 (SC)
SUPREME COURT OF INDIA
Hero Cycles (P.) Ltd.
v.
Commissioner of Income-tax
(Central), Ludhiana