TaxTMI 
TaxTMI 
2024 (2) TMI 226
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.... It was held that under Section 36(1)(iii) of the Income Tax Act, 1961 ("the Act"), interest paid in respect of capital borrowed for the purpose of business is a permissible deduction in the computation of profits and gains of business or profession and the investment made by Assessee being in the course of carrying on its business, interest expenditure is not required to be disallowed. This was impugned by the Revenue in the appeal filed before the Income Tax Appellate Tribunal ("ITAT"). At the same time, the CIT(A) confirmed disallowance of Rs. 13,62,536/- that was made by the AO. The AO also had disallowed certain expenditure that Assessee had incurred in its business amounting to Rs. 2,76,76,530/- being amount incurred for making and filing bids for modernization of Mumbai and Delhi Airports. The AO was of the opinion that the expenses being pre-commencement expenses for a project considered as new line of business cannot be shown in the profit and loss account as exceptional item. Assessee preferred an appeal before the CIT(A) and the CIT(A) concurred with this view of the AO. Assessee also filed an appeal. There were, therefore, three appeals filed before the ITAT, one by Ass....
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....ses having been incurred by Assessee in the course of carrying on its business, because objects of the company included 'carrying on business in infrastructure development', the same has to be allowed as deduction. On facts, the ITAT came to a conclusion that this expenditure has been incurred in furtherance of the business activities of Assessee. The order dated 16th October 2008 passed by the Hon'ble Bombay High Court in ITXA (L) No. 921 of 2006 on which reliance has been placed by the Tribunal, one of the questions of law was whether the Tribunal was justified in holding that the preliminary expenses incurred by Assessee prior to the commencement of its business activity could be a revenue expenditure. The Court was pleased to uphold the findings of the Tribunal that it would amount to a revenue expenditure even if Assessee was not successful in obtaining the bid. 5. Therefore, we find no error in the conclusions arrived at by the ITAT as regards the first question of law proposed. 6. As regards the second substantial question of law, the Tribunal, on facts, agreed with the finding arrived at by the CIT(A) that the amount given by Assessee to its subsidiary was for the pur....
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.... 20. In this connection we may refer to Section 36(1) (iii) of the Income Tax Act, 1961 (hereinafter referred to as the 'Act') which states that "the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession" has to be allowed as a deduction in computing the income tax under Section 28 of the Act. 21. In Madhav Prasad Jantia v. Commissioner of Income Tax U.P. (1979) 3 SCC 634: AIR 1979 SC 1291, this Court held that the expression "for the purpose of business" occurring under the provision is wider in scope than the expression "for the purpose of earning income, profits or gains," and this has been the consistent view of this Court. 22. In our opinion, the High Court in the impugned judgment, as well as the Tribunal and the Income Tax authorities have approached the matter from an erroneous angle. 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. 23. In our opinion, the decisions relating to Secti....
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....ot be allowed, as it could not be said that it was for commercial expediency. 28. Thus, the ratio of Madhav Prasad Jantia's case (supra) is that the borrowed fund advanced to a third party should be for commercial expediency if it is sought to be allowed under Section 36 (1) (iii) of the Act. 29. In the present case, neither the High Court nor the Tribunal nor other authorities have examined whether the amount advanced to the sister concern was by way of commercial expediency. 30. It has been repeatedly held by this Court that the expression "for the purpose of business" is wider in scope than the expression "for the purpose of earning profits" vide CIT V. Malayalam Plantations Ltd. (1964) 53 ITR 140, CIT V. Birla Cotton Spinning & Weaving Mills Ltd. (1971) 82 ITR 166 etc. 31. The High Court and the other authorities should have examined the purpose for which the assessee advanced the money to its sister concern, and what the sister concern did with this money, in order to decide whether it was for commercial expediency, but that has not been done. 32. It is true that the borrowed amount in question was not utilized by the assessee i....