1960 (9) TMI 1

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.... allowable deduction under section 10(2)(iii) of the Income-tax Act. It was equally common ground that from 1943 onwards the assessee-firm financed Sungo Limited, whose line of business was that of share-brokers. The directors of the two firms were the same. Up to March 31, 1956, the assessee-company charged and collected interest on the advances to Sungo Limited, and the interest collections were included in computing the business income of the assesses. On the ground that Sungo Limited was financially embarrassed, no interest was charged on the outstanding advanced during the account years 1950-51 and 1951-52. Apparently, Sungo Limited was not the only firm to which the assessee lent moneys from out of its cash, which included amoun....

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....rch 31, 1952, the debt due to the assessee-firm from Sungo Limited was Rs.97,078-9-3. Thus, the position was that the bulk of the loans on which the assessee failed to charge any interest in the year of account had been advanced to Sungo Limited before 1951-52. What section 10(2)(iii) of the Income-tax Act requires is that the assessee must have borrowed for the purposes of his business. To decide whether the advances the assessee-firm made from its funds to Sungo Limited were in the course of the business of the assessee, what is relevant is the circumstances under which the advances were made, and not the circumstances under which interest was not charged or collected even though borrowed capital had been utilised to advance loans to S....

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....sessee advanced loans to others. We have pointed out that such advances to Sungo Limited among others were made in the normal course of the business activities of the assessee-firm. That the assessee subsequently waived interest from one of its debtors, Sungo Limited, could not alter the nature of the original advances to that debtor. Certainly it could not alter the nature of the loans borrowed by the assessee. That would be the position even if the subsequent waiver of interest was not wholly due to business considerations---the considerations of the assessee's business. If the loans had been borrowed for the business purposes of the assessee, and the advances were also made by the assessee in the normal course of its business, the requir....