December 2011
Business expenditure: Interest on borrowed capital: Section 36(1)(iii) of Income-tax Act, 1961: Assessee invested borrowed funds in the shares of subsidiary company to have control over that company: Interest on borrowed funds allowable as deduction u/s.36(1)(iii).
By K. B. Bhujle, Advocate
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[CIT v. Phil Corporation Ltd., 244 CTR 226 (Bom.)]
The assessee had invested the borrowed funds in the shares of the subsidiary company. The assessee’s claim for deduction of interest u/s.36(1)(iii) of the Income-tax Act, 1961 was rejected by the Assessing Officer. The Tribunal allowed the assessee’s claim.
On appeal by the Revenue, the Bombay High Court upheld the decision of the Tribunal and held as under: “
(i) The Tribunal found that the assessee had invested the amount in question in subsidiary company for the acquisition of its shares i.e., to have a control over majority shares but not to earn dividend or interest. Before the Tribunal, it was not disputed that such an investment is an integral part of the business.
(ii) We find that the reasoning of the Tribunal that the overdraft was not operated only for investing in shares of subsidiary company to have control over that company and, therefore, the element of interest paid on the overdraft was not susceptible of bifurcation and, therefore, the respondent no. 1 is entitled to the deduction u/s.36(1)(iii) of the Income-tax Act is correct and deserves to be accepted.
(iii) In the result we hold that Tribunal was right
in deleting the addition.”
