2008 (7) TMI 983 - HC - Income Tax

Tribunal decision on interest & loans upheld under Income-tax Act

The Court upheld the Tribunal's decision regarding the disallowance of interest and deletion of interest-free loans for non-business purposes under ... - Issues Involved: The judgment involves the consideration of substantial questions of law regarding the disallowance of interest and the sustainability of deletion of interest-free loans for non-business purposes under section 260A of the Income-tax Act.Issue 1 - Disallowance of Interest: The revenue filed appeals against the Tribunal's order deleting the disallowance of interest of Rs. 9,00,000, arguing lack of nexus between borrowings and interest-free advances to a sister concern. The Tribunal found the interest-free loan given for a business consideration, distinguishing a previous judgment. The Court upheld the Tribunal's decision, citing the necessity of a business connection for interest deductions under section 36(1)(iii) of the Act.Issue 2 - Deletion of Interest-Free Loan: The Tribunal sustained the deletion of interest-free loans for non-business purposes. The revenue contended that substantial questions of law arose from the Tribunal's order, citing a previous judgment. However, the Court referenced Supreme Court decisions, emphasizing that if interest-free loans to sister concerns were for commercial expediency, the interest deduction should be allowed under section 36(1)(iii) of the Act. Consequently, the Court dismissed all three appeals, finding no substantial question of law in the Tribunal's order.