Case Law Details
PCIT Vs Videocon Industries Ltd. & Anr (Bombay High Court)
Introduction: The case of PCIT vs Videocon Industries Ltd. & Anr before the Bombay High Court delves into the allowability of interest paid on loans used to invest in shares of a subsidiary. The court’s decision sheds light on the treatment of such expenditure under the Income Tax Act.
Detailed Analysis: The appeal before the court raised two substantial questions of law concerning the disallowance of interest expenses and upfront fees paid by the assessee. The Revenue argued that the funds were diverted for non-business purposes, while the assessee contended that the investments were made for commercial expediency and in the normal course of business activities.
The court reviewed the facts and legal arguments presented by both parties. It noted that the investments made by the assessee in its subsidiary were for business purposes, as approved by the Board of Directors. Moreover, the transactions were deemed commercially expedient due to the high valuation of the telecom business at the relevant time.
Both the CIT(A) and the ITAT had arrived at a factual finding that the investments were linked to the assessee’s business interests and were made in accordance with its normal course of business activities. As such, the interest paid on the funds utilized for these investments was deemed allowable expenditure under Section 36(1)(iii) of the Income Tax Act.
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