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II. Direct Taxes Case Laws:
1. Hero Cycles (P) Ltd. Vs. CIT, C.A. No. 514 of 2008, Date of Judgement: 05.11.2015, Supreme Court of India
Interest
paid on borrowed sums further advanced to subsidiary company for
purpose of facilitating the subsidiary in meeting out its working
capital requirement is allowable as business expenditure u/s 36(1)(iii)
of Income Tax Act, 1961.
Held_Yes
The AO
disallowed the interest paid on borrowed amount utilized for giving
advance to its subsidiary company stating that that money borrowed was
not used for business purposes. Whereas the assessee contented that the
amount was advanced in compliance of the stipulations laid down by the
financial institutions to which undertaking was given by the assessee
for the purpose of providing additional margin to the subsidiary company
to meet the working capital for meeting any cash loses.
Hon’ble Supreme Court applied the view taken by Delhi High Court in CIT v. Dalmia Cement (B.) Ltd. 2002 (254) ITR 377
wherein the High Court had held that “once it is established that there
is nexus between the expenditure and the purpose of business (which
need not necessarily be the business of the assessee itself), the
Revenue cannot justifiably claim to put itself in the arm-chair of the
businessman or in the position of the Board of Directors and assume the
role to decide how much is reasonable expenditure having regard to the
circumstances of the case”.
Held
that_the advance to subsidiary company became imperative as business
expediency in view of the undertaking given to the financial
institutions by the assessee. Appeal of assessee is allowed.
(Please click here for judgment)
2. CIT Vs. Shri Kapil Kumar Agarwal, I.T.A. No. 12 of 2015, Date of Decision: 04.11.2015, High Court of P & H
Whether
to avail benefit of Section 54F of the Income Tax Act, 1961, is it
required to utilize the sale proceeds of the original capital asset only
for purchase of the new asset.
Held_No
The AO denied the benefits of Section 54F for the reason that
assessee not entirely sourced the amount invested in new assets from
capital gain receipts and investment was made after taking loan from his
employer. Assessee contented that due to non-availability of sales
consideration at the time of investment he made investment out of loan
amount.
Hon’ble High Court followed the decision of the Kerala High Court in the case of ITO vs K.C. Gopalan (1999) 107 Taxman 591 (Ker.)
wherein it was held that no provision is made by the statute that the
assessee should utilize the amount which he obtained by way of sale
consideration for the purpose of meeting the cost of new asset. Further,
it was held that the law permits utilization of capital gain within the
specified time, the assessee may use such funds for other purposes and
may find resources from other source for investment in time. Appeal is
dismissed.
(Please click here for judgment)
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