TaxTMI 
TaxTMI 
2015 (2) TMI 716
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....oans as well as working capital from various financial institutions. This subsidiary company fared badly in its business and incurred heavy losses as a result, it became a defaulter in paying its debts. The assessee was also a guarantor to the loans taken by the subsidiary company for the purpose of protecting its own business interest. Since the subsidiary company could not adhere to the repayment of its liabilities, the assessee, in order to discharge its legal obligations repaid the instalments of loan to the financial institutions and banks on behalf of the subsidiary company and debited the same to their account. According to the assessee, such repayment of the loan instalment on behalf of the subsidiary company became necessary in ord....
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....owed this expenditure towards revenue expenditure contending that it was a capital expenditure. The assessee, being aggrieved, filed an appeal, which was allowed and the plea of the assessee was accepted. The appellate authority found that the assessee had funds of its own in addition to the borrowed funds from the bank and that the loans were given to the subsidiary company under compulsion to the financial institution in order to protect the assessee's own business interest. The appellate authority found that the retained profits of the company were to the tune of Rs. 1,362 lakhs till the accounting year 1983-84 which covered the amount advanced to the subsidiary company and, therefore, found that interest on the said loan was to b....
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....llowing substantial question of law : "(1) Whether, on a true and correct interpretation of the provisions contained in section 36(1)(iii), the Tribunal was legally correct in upholding the disallowance of interest amounting to Rs. 9,54,000 as attributable to the debit balances in the account of J. K. Satoh Agri cultural Machines Ltd. even through such debits had appeared in the said account only on account of business purposes of the assessee- company ? (2) Whether, on the facts and in the circumstances of the case, par ticularly that the bank guarantee commission was paid by the asses see as a g....
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....aid in respect of capital borrowed for the purposes of business or profession. It would be found from clause (iii) of sub-section (1) of section 36 of the Act that the three conditions must be established by an assessee for getting the benefit under the aforesaid clause, namely :- (1) interest should have been payable ; (2) there should be a borrowing, and (3) capital must have been borrowed or taken for business purposes. If the capital borrowed is not utilised for the purposes of the business, the assessee will not be entitled to deduction under this clause. In case, after having bo....
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....subsidiary company. The Tribunal was not justified in disallowing the interest. Question No. 1 is answered accordingly. In CIT v. Sivakami Mills Ltd. [1997] 227 ITR 465 (SC) the assessee- company for the purpose of its business, purchased some item of machinery on deferred payments in terms under which an immediate payment had to be made and the balance amount was to be paid in instalments. For assuring due payment of the instalments, the assessee obtained a guarantee executed by a bank in favour of the sellers, as a result of which, the bank charged a commission. The assessee claimed deduction of the amount of commission as a revenue expenditure. The High Court held that the guarantee commission paid to the bank by the assessee-company ....