TaxTMI 
TaxTMI 
2005 (6) TMI 19
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....is interest-free advances were given for the purpose of business entitling the assessee to the benefit of section 36(1)(iii) of the Income-tax Act, 1961. We may now examine these questions as hereafter. Whether the recipient of interest-free loan is a firm of relatives: The Assessing Officer had found that the firm to which interest-free loan was advanced was constituted by the relatives of the directors of the assessee. But the relatives as has been explained or spelt out by the Assessing Officer shows that this relations did not come within the definition of relatives as defined in section 2(41) of the Income-tax Act, 1961. Therefore, the first point that has been urged by Mr. Banerjee, that the firm with which the assessee was dealing was a firm of the relatives, cannot be sustained. Inasmuch as section 2(41) defines "relative" in relation to an individual to mean the husband, wife, brother or sister or any lineal ascendant or descendant of that individual. In this case the relation was sought to be related between the individual office-bearers of the assessee and the firm. Having regard to this definition as mentioned above, the firm can by no stretch of imagination be....
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....d for the purpose of business and the third that interest is payable on such capital borrowed. These three ingredients are to be satisfied in order to claim deduction under section 36(1)(iii). In this case that the interest is paid on the borrowing is not in dispute. That the borrowing was a capital is also not in dispute. What is disputed in this case is that this borrowed capital was not utilized for the purpose of the assessee's business. Learned counsel for the Department, Mr. Shibdas Banerjee, senior counsel, pointed out that this borrowing was siphoned off to the firm MCAP. Therefore, it is not a capital borrowed for the purpose of the business. According to him, it was borrowed for the purpose of helping the firm. It was not utilized for the purpose of the business. We do not find that the question is so simple as has been sought to be presented by Mr. Banerjee in order to ascertain the characteristics of the borrowing in relation to the business of the assessee as appears from the facts disclosed in the present case. Admittedly, the borrowing was made for the purpose of extending the packing credit. The amount of packing credit is definitely a capital borrowed. But th....
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....ich accounted for 70.45 per cent, of the total cashew-nut kernels exported by the assessee in that year. At para. 9 the Commissioner (Appeals) found that the Assessing Officer had misstated the facts in his order. This finding was affirmed by the learned Tribunal at para. 7 of its order where it had found that out of the total export of the cashew-nut kernels of Rs. 129 lakhs in the assessment year 1985-86, an extent of Rs. 91 lakhs was supplied by MCAP to whom advance was made by the assessee. Thus, the finding, which is a finding of fact, becomes a concurrent finding of fact concluded by the Commissioner (Appeals) and the learned Tribunal. Mr. Banerjee attempts to point out that this concurrent finding is based on no materials and as such is perverse. But Mr. Banerjee has not been able to show from the record that there is any material to contradict the finding of the Commissioner (Appeals) and those of the learned Tribunal. The Department has also not filed any cross-objection nor appeal against this particular finding before the learned Tribunal. On the other hand, Dr. Pal points out that no such ground has since been taken even in this appeal. Admittedly, the order of the A....
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....siness. In the present case, MCAP might be a partnership firm constituted of some near relations outside the purview of the definition of relatives under section 2(41), yet the advance was made for the purpose of its business for exporting cashew kernels in order to secure consistent supply of quality cashew-nuts for export business of the assessee, a fact similar to the facts considered in the said case. Dr. Pal then relied on CIT v. Gillanders Arbuthnot and Co. Ltd. [1992] 195 ITR 331 (Cal). There also the assessee-company had financed one Burlow and Co. which in turn had financed various other companies managed by Gillanders Arbuthnot and Co. and after Burlow and Co. was taken over by Gillanders Arbuthnot and Co., the balance-sheet of Burlow and Co., the advances given by Gillanders Arbuthnot and Co. and also the loan given to the different subsidiary companies by Burlow and Co. was wiped off. In such circumstances, it was held that the finance was really made by Gillanders Arbuthnot and Co. and that such financing to the managed company was incidental to the business of managing agency. Dr. Pal then relied on the decision in CIT v. Gwalior Sugar Co. Ltd. [1984] 150 ITR 320 (....
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....here were sufficient funds for making advance of Rs. 1.65 crores out of total transaction of Rs. 114.08 crores. If there is surplus and the advance is made out of the mixed fund, in that event, it cannot be said that the amount borrowed as capital from the bank was advanced, in order to deny the benefit of section 36(1)(iii) in the present case. If it is established that the payment was made from the mixed account and the assessee had sufficient funds then it is to be presumed that the payment was made out of the assessee's own fund and that the borrowed capital was not siphoned out. Dr. Pal relied on other decisions in Woolcombers of India Ltd. v. CIT [1982] 134 ITR 219 (Cal) at page 227; CIT v. Samuel Osborn (India) Ltd. [1982] 135 ITR 699 (Cal); Indian Explosives Ltd. v. CIT [1984] 147 ITR 392 (Cal) and Alkali and Chemical Corporation of India Ltd. v. CIT [1986] 161 ITR 820 (Cal) at page 823. In Alkali and Chemical Corporation of India Ltd. [1986] 161 ITR 820, this court had considered the decisions in Woolcombers of India Ltd. [1982] 134 ITR 219 (Cal); Reckitt and Colman of India Ltd. v. CIT [1982] 135 ITR 698 (Cal) and Indian Explosives Ltd. v. CIT [1984] 147 ITR 392 (Cal).....