Https://Hcservices.ecourts.gov.in/Hcservices v. M/S. Shriram Investments

In the High Court of Judicature at Madras Coram : The Honourable Mr.Justice T.S.SIVAGNANAM and The Honourable Mrs.Justice V.BHAVANI SUBBAROYAN Tax Case Appeal No.917 of 2019The Commissioner of Income Tax, Chennai. ...Appellant/AppellantVsM/s.Shriram Investments, Chennai-4. ...Respondent/Respondent APPEAL under Section 260A of the Income Tax Act, 1961 againstthe order dated 20.6.2019 made in ITA.No.2895/Chny/2018 on thefile of the Income Tax Appellate Tribunal, Chennai 'B' Bench forthe assessment year 2012-13, and against the order of the Commissioner of Revenue Tax(Appeals)-2, Chennai dated 24/02/2016 in ITA.No.62 & 208/CIT(A)-2/2014-15 for the Assessment Year 2011-12,2012-13 andagainst the order of the Deputy Commissioner of Income Tax NonCorporate Circle-2, Chennai, dated 30/12/2014 in PAN/GIRNo. for the Assessment Year 2012-13. For Appellant :Mrs.R.Hemalatha, SSC For Respondent:Mr.R.Sivaraman Judgment was delivered by T.S.Sivagnanam,J We have heard Mrs.R.Hemalatha, learned Senior StandingCounsel appearing for the appellant – Revenue andMr.R.Sivaraman, learned counsel appearing for the respondent –assessee. 2. This appeal, filed by the assessee under Section 260A ofthe Income Tax Act, 1961 (for short, the Act) is directedagainst the order dated 20.6.2019 made in ITA.No.2895/Chny/2018on the file of the Income Tax Appellate Tribunal, Chennai 'B'Bench (for brevity, the Tribunal) for the assessment year 2012-13. https://hcservices.ecourts.gov.in/hcservices/ 3. The appeal has been admitted on 20.11.2019 on thefollowing substantial questions of law :“(1) Whether on the facts and in thecircumstances of the case, the Tribunal wasright in deleting the disallowance madeu/s.36(1)(iii) of the Income Tax Actespecially when the Assessee had advancedinterest bearing funds without charging anyinterest? And (2) Whether on the facts and in thecircumstance of the case, the Tribunal wasright in not considering the fact that thematching principle in terms of income andexpenditure is not applicable when cashmethod of accounting is followed as the sinequa non for allowability of expenditure isthe nexus between the income and expenditurereported for the year in question asapplicable in terms of Section 36 and 37 ofthe Income Tax Act?” 4. It is submitted by the learned counsel on either side thatthe issue in this case is covered by the decision of this Courtin the assessee's own case in TCA.No.166 of 2019 dated21.2.2019. 5. The relevant portions in the said judgment read thus :“6. We have heard the learned counselfor the parties and also gone through theorder impugned of the learned Tribunal.7. A Co-ordinate Bench of this Court,in the case of Assessee itself, for theprevious Assessment Years in T.C.A.No.2657of 2006 and other connected matters, decidedon 17.09.2014, had held in favour of theAssessee that deduction under Section 36 (1)(iii) of the Act was allowed, though theAssessee had borrowed the capital for thepurpose of business of investments. Therelevant portion of the said judgment isalso quoted below for ready reference:'That, while adjudicating the claim fordeduction under section 36 (1) (iii) of theAct, the nature of the expense-whether theexpense was on capital account or revenueaccount was irrelevant as the section itselfsays that interest paid by the assessee onthe capital borrowed by the assessee was anitem of deduction. That the utilization of capital was irrelevant for the purpose ofadjudicating the claim for deduction undersection 36 (1) (iii) of the Act. (see thejudgment of the Bombay High Court in thecase of Calico Dyeing & Printing Works v.CIT (1958) 34 ITR 265. In that judgment, ithas been laid down that where an assesseeclaims deduction of interest paid on capitalborrowed, all that the assessee had to showwas that the capital which was borrowed wasused for business purpose in the relevantyear of account and it did not matterwhether the capital was borrowed in order toacquire a revenue asset or a capital asset.'It may be noted that in India CementsLtd. v. CIT (1966) 60 ITR 52 (SC), the apexcourt was specifically pleased to observethat the object of the loan is an irrelevantconsideration. In the State of Madras Vs.G.J.Coelho (1964) 53 ITR 186 (SC) , theSupreme Court was dealing with the deductionclaimed under section 5 (e) of the MadrasPlantations Agricultural Income-tax Act,1955. While considering the issue, the courtwas pleased to observe that in principlethere is no distinction between interestpaid on capital borrowed for the acquisitionof a plantation and interest paid on capitalborrowed for the purpose of an existingplantation. Both are for the purpose of theplantation. The court further observed thatthe payment of interest on the amountborrowed for the purpose of the plantationswhen the whole transaction of purchase andthe working of the plantations was viewed asan integrated whole was so closely relatedto the plantations that the expenditurecould be said to be laid out or expendedwholly and exclusively for the purpose ofthe plantations. 8. We may also gainfully refer to thejudgment of the Calcutta High Court in CITv. Rajeeva Lochan Kanoria (1994) 208 ITR616. The learned court was consideringsection 36 (1) (iii) and was pleased toobserve as under (page 620) : 'The only enquiry that is to be made iswhether the payment of interest was inrespect of capital borrowed for the purposeof the assessee's business or profession. 8. We may also gainfully refer to thejudgment of the Calcutta High Court in CITv. Rajeeva Lochan Kanoria (1994) 208 ITR616. The learned court was consideringsection 36 (1) (iii) and was pleased toobserve as under (page 620) : 'The only enquiry that is to be made iswhether the payment of interest was inrespect of capital borrowed for the purposeof the assessee's business or profession. There is no dispute that the capital wasborrowed in the instant case and interestwas paid on the borrowed capital. It is tobe established that the amount was borrowedfor the purpose of business or profession.The amount borrowed may be utilized for thepurpose of acquisition of stock-in-trade orfor the purpose of acquisition of capitalassets. But so long as the money is utilisedfor business purposes the interest will haveto be allowed as deduction. It is wellsettled that business expenditure is notconfirmed to expenses incurred on revenueaccount. Capital expenditure may not beallowed as a deduction under section 37because the section specifically bars anydeduction of expenditure of capital nature.But section 36 is differently worded. Thereis no bar in section 36 (1) (iii) toallowance of interest paid in respect ofcapital borrowed which has been utilised forpurchase of a capital asset. The position oflaw in this regard was explained by theSupreme Court in the cases of India CementsLtd. v. CIT (1966) 60 ITR 52 (SC) and Stateof Madras v. G.J.Coelho (1964) 53 ITR 186(SC)' (emphasis supplied).8. We have considered the reasoninggiven in the decisions referred to supra andare in respectful agreement with the viewexpressed in the said decisions, for thereason already given by us that there isnothing in Section 36 (1) (iii) of the Actthat would dis-entitle the assessee to claimdeduction in respect of interest paid on thecapital borrowed for the purposes ofbusiness.9. For the foregoing reasons, we upholdthe concurrent findings rendered by theCommissioner of Income Tax (Appeals) and theTribunal and answer substantial question oflaw against the Revenue and in favour of theassessee. These appeals are dismissed. Nocosts.'8. The Hon'ble Supreme Court, in thecase of S.A.Builders, cited supra, held thatit will depend upon the facts andcircumstances of the respective case andunless the money advanced to a sisterconcern cannot be held to have been advanced for commercial expediency of the assessee,the interest paid thereon by the borrowerAssessee cannot be disallowed under Section36 (1) (iii) of the Act. Para 36 of the saidjudgment is quoted below for ready reference: for commercial expediency of the assessee,the interest paid thereon by the borrowerAssessee cannot be disallowed under Section36 (1) (iii) of the Act. Para 36 of the saidjudgment is quoted below for ready reference: “36. We wish to make it clear that itis not our opinion that in every caseinterest on borrowed loan has to be allowedif the assessee advances it to a sisterconcern. It all depends on the facts andcircumstances of the respective case. Forinstance, if the Directors of the sisterconcern utilize the amount advanced to it bythe assessee for their personal benefit,obviously it cannot be said that such moneywas advanced as a measure of commercialexpediency. However, money can be said to beadvanced to a sister concern for commercialexpediency in many other circumstances(which need not be enumerated here).However, where it is obvious that a holdingcompany has a deep interest in itssubsidiary, and hence if the holding companyadvances borrowed money to a subsidiary andthe same is used by the subsidiary for somebusiness purposes, the assessee would, inour opinion, ordinarily be entitled todeduction of interest on its borrowed loans.'9. We are of the considered opinion,that, as a matter of fact, no substantialquestion of law arises in the present case,because, it is essentially a finding of factas to whether the lower interest paid on theborrowings made by the assessee company fromthe sister concerns or the group companiesis for the purpose of its business or not.Whether it is commercially expedient or notfor the Assessee cannot be decided by theRevenue authorities and unless a decisiontaken in the usual course of business by theAssessee can be held to be arbitrary ormotivated, deliberately taken to defeat thepurpose of the Revenue, it cannot be heldthat the lower interest rate paid to theborrowers on the borrowings made by theassessee company is disallowable underSection 36 (1) (iii) of the Act. No suchfinding of fact has been recorded by theTribunal. On the contrary, in Para 7 of the Tribunal's order, quoted above, theTribunal, in our opinion, rightly held thatwhen the cash system of accounting wasadopted by the Assessee, an InvestmentCompany, whose business is only to borrowand lend or invest, the same cannot be saidto be not in the business interest orcommercially expedient for the purpose ofbusiness and the concept of 'MatchingPrinciples', which has been applied by theAssessing Authority and the CIT (A) in thepresent case, was not really applicable. Itis not for the Revenue authorities tosubstitute their own wisdom or notion aboutthe rate of interest agreed to between theparties, including the group companies and,as such, the finding of fact aboutcommercial expediency or absence thereof isa finding of fact, out of which, nosubstantial question of law can be said tobe arising, requiring our considerationunder Section 260A of the Act. Moreover,since in the case of Assessee companyitself, this Court has only decided onsimilar facts earlier and dismissed theRevenue's Appeal, we do not find any reasonto take a different view of the matter forthe Assessment Years in question before us. 10. Therefore, this Appeal, filed bythe Revenue, is also liable to be dismissedand it is, accordingly, dismissed.” 6. Following the said decision, the above tax case appeal isdismissed and the substantial questions of law framed areanswered in against the Revenue. No costs. To 1.The Income Tax Appellate Tribunal, Chennai 'B' Bench. Chennai 'B' Bench. https://hcservices.ecourts.gov.in/hcservices/ 2.The Deputy Commissioner of Income Tax, Non Corporate Circle-2, Chennai. Non Corporate Circle-2, Chennai. 3.The Commissioner of Income Tax (Appeals)-2, Chennai-34. Chennai-34. +1cc to Mr.R.Sivaraman, Advocate Sr.32958 +1cc to Mr.T.Ravikumar, Advocate Sr.32965 10. Therefore, this Appeal, filed bythe Revenue, is also liable to be dismissedand it is, accordingly, dismissed.” 6. Following the said decision, the above tax case appeal isdismissed and the substantial questions of law framed areanswered in against the Revenue. No costs. To 1.The Income Tax Appellate Tribunal, Chennai 'B' Bench. Chennai 'B' Bench. https://hcservices.ecourts.gov.in/hcservices/ 2.The Deputy Commissioner of Income Tax, Non Corporate Circle-2, Chennai. Non Corporate Circle-2, Chennai. 3.The Commissioner of Income Tax (Appeals)-2, Chennai-34. Chennai-34. +1cc to Mr.R.Sivaraman, Advocate Sr.32958 +1cc to Mr.T.Ravikumar, Advocate Sr.32965 TCA.No.917 of 2019kk[co]srg 02/12/2020