Modi Business Centre Pvt. Ltd. Vs DCIT (Bombay High Court)
Facts- The Assessee, a private limited company incorporated in February 1992, was engaged in constructing and letting out business centres, with an ancillary object of financing under its MoA.
- During FY 1991-92, the Assessee borrowed ₹9.20 crore from Citibank against equitable mortgage, out of which part was used for capital advances and pre-operative expenses, and the balance was advanced to group companies at interest rates of 21–22.5%.
- For AY 1992-93, the Assessee declared income of ₹5,966 under “business,” showing interest income of ₹14.67 lakh from sister concerns and claiming deduction of ₹13.37 lakh as interest paid to Citibank, along with guarantee commission and other expenses.
- The AO held that the Assessee’s business had not commenced (since no rental income was received from the business centre) and assessed the interest income under “other sources” without allowing deduction of interest expenditure.
- While CIT(A) allowed the set-off holding the transactions as composite and business as commenced, ITAT reversed the order, ruling that money-lending was not part of the Assessee’s main business and disallowed the set-off, restoring AO’s order.
Issues- Whether the interest paid by the Assessee to the Bank funds borrowed for business purposes can be adjusted as a set off against interest received by it by lending part of the said borrowed funds to its sister concerns?
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