TaxTMI 
TaxTMI 
2006 (10) TMI 213
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....cision of the Tribunal Pune, in the case of Chindhy's Interiors in ITA No. 619/Pune/2002 for asst. yr. 1998-99, dt. 3rd March, 2006. In para 3.3 of his order the Tribunal held as under: "3.3 We have considered the facts of the case and rival submissions. There are a number of Tribunal decisions including the decisions discussed by the learned CIT(A) that membership fees of the clubs for executives and directors constitute admissible expenditure as such membership gives a chance to employees to interact with existing and future customers. The Western Royal Turf Club did not permit membership of a firm and, therefore, the assessee decided to take up life membership in the name of the partner. The benefit accruing to the firm will be the same as accruing to companies when the membership is taken for the employees or directors. Therefore, we find that there is no distinction in the facts of this case and the facts of the cases relied upon by the assessee. Accordingly, it is held that the assessee was entitled to deduct the aforesaid amount of Rs. 1 lakh in computing its income. Thus, this ground of appeal is also allowed." 4. We find that the facts of the case in the present appeal a....
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.... 6,30,648 ---------------------------------------- Interest on partner's capital 12,80,314 ---------------------------------------- Total 20,65,149 ---------------------------------------- 8. The AO made a disallowance in respect of the claim for interest calculated at 18 per cent and made an addition of Rs. 2,01,070. The CIT(A) confirmed the AO's action and his order has been challenged in the present appeal. 9. Shri S.P. Joshi, the learned Authorised Representative, reiterated the arguments which were put forward on behalf of the assessee before the AO and the CIT(A). He submitted that there was no direct nexus between the interest-bearing funds and the interest-free loans/advances given by the assessee, that there was no increase in the cash credit limit sanctioned by the bank during the last two years, that these loans/advances were given out of the profits of the assessee firm, that the assessee had substantial bank ....
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....overdraft accounts depends upon the extent to which the sanctioned credit limits are utilized. The debit or the credit balance in an overdraft account keeps changing with successive transactions routed through such an account. A payment from a buyer is deposited and there is a credit balance and then a payment made therefrom to a supplier may result in a debit balance. Further, there is always a' time lag between the issue of a cheque from a current/overdraft account and the entry in this account in respect of the encashment of a cheque deposited. 12.2 When a cheque is issued from a current/overdraft account for an interest-free advance for a non-business purpose, it becomes immaterial whether there was a debit balance or a credit balance at the time when the cheque was issued or at the time when the amount represented by that cheque was posted in the account. There is no doubt that a current/overdraft account is always for availing of a credit facility for the requirements of the assessee's business and that the assessee pays interest in respect thereof. Therefore, the nexus between the interest-bearing funds and an interest-free advance can be said to exist whenever a cheque is ....
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....distinguished the decision of the Bombay High Court in the case of Bombay Samachar. 14. In the case of Bombay Samachar, it was not disputed that the capital borrowed by the assessee from the outsiders was used by the assessee for the purposes of its business. The AO had taken a view that if the assessee had collected the outstandings which were due to it from others, it would have been able to reduce its indebtedness and save a part of the interest which it had to pay on its own borrowings, that the assessee was not justified in allowing its outstandings to remain without charging any interest thereon, while it was paying interest on the amounts borrowed by it, and that to the extent to which it would have been in a position to collect interest on the outstandings due to it from others, it could not be permitted to claim interest paid by it to outsiders. The High Court held that such a view was clearly unsustainable and that in deciding whether a claim of interest on borrowing can be allowed, the fact that the assessee had ample resources at its disposal and need not have borrowed was not a relevant matter for consideration. 15. The Supreme Court in a later judgment in the case o....
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....tent. 16.2 The entire money in a business entity comes in a common kitty. The monies received as share capital, as term loan, as working capital loan, as sale proceeds, do not have any different colour and have no separate identification. The disallowance of interest paid on the borrowing to the extent the amount is lent to a sister-concern, interest-free, and for non-business purposes would be justified if the assessee had some loans or other interest-bearing debts to be repaid. Because in such a situation, the cost of funds being incurred by the assessee, the sister-concern would be enjoying the benefits thereof. Once it is borne out from the record that the assessee had borrowed certain funds on which liability to pay interest was being incurred and at the same time certain interest-free advances had been made to sister-concerns for non-business purposes, the interest paid on the borrowing to the extent of interest-free advances is to be disallowed under s. 36(1)(iii) of the Act. This decision of the Punjab & Haryana High Court supports the view taken by us in this case in para 12.2 above. The Court also referred to the decision of the Madras High Court in the case of K. Somasu....