Case Law Details
SUMMARY
Where the assessee had its own funds as well as borrowed funds and it advanced funds to its sister concerns for allegedly non-business purposes and the question arose whether the AO was justified in disallowing the interest on the borrowed funds on the ground that they had been used for non-business purposes, HELD:
Where an assessee has his own funds as well as borrowed funds, a presumption can be made that the advances for non-business purposes have been made out of the own funds and that the borrowed funds have not been used for this purpose. Accordingly, the disallowance of the interest on the borrowed funds is not justified.
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO.1398 OF 2008
The Commissioner of Income vs. Reliance Utilities & Power Ltd.
Mr.Vimal Gupta, for the Appellant.
Mr. J.D. Mistry with Mr. Raj Darak & Mr. P.C. Tripathi, for the Respondent.
CORAM: F.I. REBELLO & R.S.MOHITE, JJ.
DATED: 9th January, 2009
JUDGMENT (PER F.I. REBELLO, J.):
. Admit on the following question:-
(A) Whether on the facts and in the circumstance of the case and in law the Hon’ble Tribunal was justified in holding that the Assessee Company had sufficient funds of its own for making the investments without using the interest bearing funds even though the Balance Sheet of the Assessee Company as at 31.03.1999 shows that the Assessee Company has no reserve or own funds for making the investments in the sister concern and therefore, borrowed funds have been utilized and interest on these borrowed funds are rightly disallowed by the Assessing Officer?
2. We may also mention that in Appeal Memo the Revenue had raised the following question:-
(B) Whether on the facts and in the circumstance of the case and in law the Hon’ble Tribunal was right in holding that advances to sister concerns were for business purposes even though the Assessee Company is not in the business of investments and there is nothing on record to suggest that the advances made to sister concerns were made for business purposes?
At the hearing of this Appeal in so far as Question (B) is concerned, considering the judgment of the Supreme Court in S.A. Builders Ltd. vs. Commissioner of Income-tax (Appeals) and Anr., (2007) 288 IR 1 (SC), the learned Counsel did not press that question and consequently we have not admitted the Appeal on the said Question.
3. The Assessing Officer had recorded a finding that the sum of Rs.213 crores were invested out of their own funds and Rs.147 crores were invested out of borrowed funds. Accordingly had disallowed interest amounting to Rs.4.40 crores calculated @ 12% per annum for three months from January, 2000 to March, 2000.
4. From the order of the Assessing Officer the assessee in respect of disallowance of interest amounting to Rs.4.40 crores preferred an Appeal to the C.I.T. (Appeals). It was the contention of the Assessee that the assessee had invested Rs.389.60 in Reliance Gas Limited and Rs.1.01 in Reliance Strategic Investments Limited. The Assessee themselves were in the business of generation of power. The Companies, in which the investments were made, were in the energy sector. Investments were made mainly during January, 2000 to March, 2000. It was the submission of the Assessee that they had earned regular business income from distribution of power and investments made were in the companies in energy sector and were with a view to build long term business prospects. Investments were in the regular course of business and accordingly no part of interest can be disallowed when the fund is utilized for the purpose of business. It was also pointed out that respondent had borrowed Rs.43.62 crores by way of issue of Debentures and the said amount was utilised as capital expenditure and inter corporate deposit. It was the submission that no part of the interest bearing fund have gone into investments in the two companies. In so far as funds are concerned it was pointed out that income from operation of the company was Rs.418.04 crore which was evenly distributed. Considering this, till December, 1999 the appellant had earned Rs.313.53 crore from its operation. It had raised capital of Rs.7.90 crores and had also received interest free deposit of Rs.10.03 crores. Also it had recovered Rs.39.04 from its debtors.
. It was also pointed out that considering the balance sheet for the year ending 31st January, 2000 the availability of interest free fund was as
under:-
Share capital 180.00
Reserves & Surplus 120.80
Depreciation reserves 95.39
—————————
Please become a Premium member. If you are already a Premium member, login here to access the full content.
