High Court Of Rajasthan : Jaipur Bench
Indian Shaving Products Ltd. vs. CIT
Sections 36(1)(iii), 260A
Asst. Year 1989-90, 1990-91
Y.R. Meena & K.C. Sharma, JJ.
IT Appeal Nos. 34 & 45 of 2003
31st March, 2003
Counsel Appeared
Sanjay Jhanwar, for the Appellant
JUDGMENT
BY THE COURT :
Heard learned counsel for the appellant.
2. In these two appeals, following questions are proposed to be considered, being the substantial questions of law :
Asst. yr. 1989-90 (Appeal No. 45/2003)
“Whether the amount of Rs. 2,40,74,820 utilized by the assesseecompany for acquisition of shares of M/s Sharpedge Ltd. through its subsidiaries in order to acquire controlling interest and improve the business conditions is not “for the purpose of business” within the meaning of s. 36(1)(iii) of the Act of 1961, and whether in such circumstances the interest expenditure in relation to such amount can be disallowed under the Act ?”
“Whether the disallowance of Rs. 75,83,860 under s. 36(1)(iii) of the Act of 1961 is justified on the ground that no direct nexus is proved between the interest-free advances received from M/s Gillette U.K. Ltd. and interest-free advances given to subsidiary companies when the nexus is not only evident from the bank statements but is also accepted by the Department in their remand report?”
“Whether Ltd. Tribunal was justified in disallowing Rs. 75,83,860 when there was compliance of basic conditions of s. 36(1)(iii) of the Act and the Department failed to discharge its burden under the law and made the disallowance on presumption and surmises ?”
Asst. yr. 1990-91 (Appeal No. 34/2003)
“Whether the amount of Rs. 2,40,74,820 utilized by the assesseecompany for acquisition of shares of M/s Sharpedge Ltd. through its subsidiaries in order to acquire controlling interest and improve the business conditions is not “for the purpose of business” within the meaning of s. 36(1)(iii) of the Act of 1961, and whether in such circumstances the interest expenditure in relation to such amount can be disallowed under the Act ?”
“Whether the disallowance of Rs. 73,27,616 under s. 36(1)(iii) of the Act of 1961, is justified on the ground that no direct nexus is proved between the interest-free advances received from M/s Gillette U.K. Ltd. and interest-free advances given to subsidiary companies when the nexus is not only evident from the bank statements but is also accepted by the Department in their remand report?”
“Whether Tribunal was justified in disallowing Rs. 73,27,616 when there was compliance of basic conditions of s. 36(1)(iii) of the Act and the Department failed to discharge its burden under the law and made the disallowance on presumption and surmises ?”
3. The assessee has given advance free of interest to its 4 subsidiaries. The details thereof read as under : Rs. Sabre Pens Ltd. 59,26,087 Sheen Dental Products 63,62,702 Klosershav Products Ltd. 55,67,615 Venity Cosmetic Ltd. 62,18,416 2,40,74,820 Assessee was not having its own sufficient funds even to run his business and was running in huge losses in these years. On the amount borrowed, he has paid the interest i.e., interest of Rs. 75,83,860 in the asst. yr. 1989-90 and Rs. 73,27,616 in the asst. yr. 1990-91. Assessee claimed deduction of this interest in these two assessment years on the ground that assessee wants to have control over another company i.e., M/s Sharpedge Ltd., after purchasing its shares.
4. Tribunal found that it is not the business of the assessee to purchase and sale of the shares. Admittedly the assessee has paid the huge amount of interest on the borrowings and he has advanced free of interest loan of more than Rs. two crore forty lakhs to its subsidiaries. Tribunal also found that assessee failed to establish that this advance amount is having any nexus with the amount he has with him free of interest. On the contrary, the finding is that assessee-company is running in huge losses and when assessee had paid the huge interest on the loan from financial institutions, there is no justification to advance interest-free loan of Rs. 2,40,74,820 to its subsidiaries for purchase of share.
5. On the aforesaid findings, whether interest should be allowed or not, whether interest-free loan advanced to the four subsidiaries is for purpose of business, is basically a question of fact. No substantial question of law does arise for consideration. Otherwise also, the finding of fact of the Tribunal that interest-free loan to its four subsidiaries was not for the purpose of business is not perverse, nor there was any justification to pay huge amount of interest on the borrowings and advance the loan to its subsidiaries at free of interest. No interference is called for in the order of Tribunal. Both the appeals stand dismissed at admission stage.
[Citation : 265 ITR 250]
