Advocate Akhilesh Kumar Sah
The Pr. CIT Vs DLF Hotel Holding Ltd. (Delhi High Court)
DLF Hotel Holding Case: Interest On Borrowed Funds Allowed As Deduction Under Section 36(1)(iii) Even If Some Of Funds Financed To Subsidiary Companies
In PCIT vs. DLF Hotel Holding Ltd (ITA NO.1012/2018 decided on 28.09.2018) the facts in brief were that during the period relating to the A.Y. 2010-11 an addition of Rs.83,63,03,480/- was made to the opening balance of the paid up share capital of the respondent-assessee, enhancing the same to Rs.1259,68,00,000/-. The respondent-assessee had invested Rs.1165,23,06,015/- in shares of group companies. The respondent assessee had also taken unsecured loans of Rs. 223,10,02,165/- on which interest of Rs. 12,83,76,153/- was paid and claimed as a deduction under Section 36(1)(iii) of the Income Tax Act. 1961(for short ‘the Act’).
The Assessing Officer(AO) in the Assessment Order dated 23rd March, 2013 observed and held that the respondent-assessee had maintained common account for both borrowed funds and capital funds, out of which investment in shares of the group companies was made. The AO made an addition of Rs. 5,33,01,263/- on the following working:-
| S. No. | Particulars | Amount (in Lacks) |
| A. | Total interest paid | 1,962.04 |
| B. | Total interest income | 1,283.76 |
| C. | Net Interest paid (A-B) | 678.28 |
| D. | Average investments | 1,16,523.06 |
| E. | Total funds as per Books i.e. total of Balance | 1,48,282.00 |
| F. | Net Interest allocated to average investment (C*D/E) i.e. addition for (sic) | 533.01 |
Before the CIT(A) it was pointed out by the respondent-assessee that one of the main objects for which the respondent-assessee was established was to purchase, acquire, hold, trade and further to dispose of any right, stake or controlling interest in shares, stocks, debentures etc. Thus making investment was a part of respondent assessee’s business. Further, the respondent-assessee was engaged in the business of hospitality, hotel management services and investment in companies dealing with retail business. The respondent-assessee was entitled to borrow capital for purpose of business and interest paid on borrowed capital has to be allowed as a deduction under Section 36(1)(iii) of the Act. The respondent-assessee had made investments in fixed capital net of depreciation of Rs.2,48,64,604/- and they had made investment of Rs.257,56,99,484/- by way of current asset, advances and loans including unsecured loans to subsidiaries of Rs.205,20,21,046/-.
Agreeing with the respondent-assessee, the CIT(A) vide order dated 7th January, 2015 held that the AO had not taken into account crucial evidence in the form of the loans extended by the respondent-assessee to subsidiary companies and the interest received/earned on the said loans. The CIT(A) had reproduced the following table:-
