TaxTMI 
TaxTMI 
2013 (5) TMI 760
X X X X Extracts X X X X
X X X X Extracts X X X X
....the disallowance of Rs.9,39,10,092/- made u/s. 36(1)(iii) of the Act in respect of disallowance of interest relatable to diversion of interest bearing funds to interest free advances?" B. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that the receipt by way of gain on cancellation of foreign exchange contracts is a capital receipts not liable to tax and accordingly directing the Assessing Officer to make necessary adjustments to the cost of acquisition/WDV of the plant and machinery to which the said receipt pertains and to make consequential adjustments to the depreciation granted?" 3. Tax Appeal No.399 of 2000 had also been admitted by formulating identically worded questions, except that the figure in the first question should be Rs.10,49,64,986/- instead of Rs.9,39,10,092/- as reflected in the question. 4. Tax Appeal No.400 of 2000 has been admitted by formulating three questions of law. The first two being identically worded to the other appeals except that in the first question the figure is Rs.8,48,22,775/- The third question is as under: "E. Whether on the facts and in the circumstances of the ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s together with the accumulated depreciation would far exceed the loans and advances made to the above said three concerns. The percentage of loans and advances in relation to the own funds of the assessee company would be 0.012% as on 1- 4-94 and 0.1335% as on 31-3-95 as per details furnished on page 62 of the paper book. In other words there were sufficient funds available with the company on which no interest was paid and out of which the loans and advances to the above said concerns could be made. There is no clear evidence that the interest bearing loans taken by the assessee company for the purposes of its own business have been diverted for non-business purposes. No direct nexus has been proved either by the AO or by the CIT(A) between the interest bearing loans taken and the interest free advances given. In the circumstances, we find that the ratio of the decisions relied upon by the ld. Counsel for the assessee (vide para 7.1) (supra) is squarely applicable to the facts of the present case. In this view of the matter, we direct the AO to delete the addition." 7. Adverting to the facts of the present cases, before the Tribunal the learned counsel for the assessee filed a d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e. In the present case, the assessee borrowed the fund from the bank and lent some of it to its sister concern (a subsidiary) on interest-free loan. The test, in our opinion, in such a case is really whether this was done as a measure of commercial expediency. 24. In our opinion, the decisions relating to Section 37 of the Act will also be applicable to Section 36(1)(iii) because in Section 37 also the expression used is "for the purpose of business". It has been consistently held in decisions relating to Section 37 that the expression "for the purpose of business" includes expenditure voluntarily incurred for commercial expediency, and it is immaterial if a third party also benefits thereby. 25. Thus in Atherton v. British Insulated & Helsby Cables Ltd, (1925) 10 TC 155, it was held by the House of Lords that in order to claim a deduction, it is enough to show that the money is expended, not of necessity and with a view to direct and immediate benefit, but voluntarily and on grounds of commercial expediency and in order to indirectly facilitate the carrying on of the business. The above test in Atherton case2 has been approved by this Court in several decisions e.g. Eastern Inve....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (Appeals) Chandigarh and Another (supra) would not be applicable to the facts of the present case. When no interest bearing funds have been diverted to the sister concern by way of interest free advances, the question of going into the commercial expediency of such loans would not arise. In fact, in the light of the findings recorded by the Tribunal, the question as formulated while admitting the appeals would not arise as on facts there is no diversion of interest bearing funds to interest free advances. In the circumstances, the Tribunal was justified in deleting disallowance made under section 36(1)(iii) of the Act. 11. Another notable aspect of the matters is that the Tribunal has followed its earlier decision for assessment year 1995-96. Against the order of the Tribunal in relation to assessment year 1995-96, revenue has preferred appeal before this Court being Tax Appeal No.770 of 1999. However, in the said appeal no question has been raised nor formulated challenging the order of the Tribunal in relation to the said issue. In the circumstances, the revenue appears to have accepted the decision of the Tribunal on the said issue in relation to assessment year 1995-96; hence....