Itxa/542/2002 Of The Commissioner Of Income Tax, Mumbai-Iii v. Reliance Exports Ltd

IN THE HIGH COURT OF JUDICATURE AT BOMBAY O.O.C.J. INCOME TAX APPEAL NO.542 OF 2002 The Commissioner of Income Tax,City-3, Mumbai. v/s. M/s. Reliance Exports Ltd. .. Appellant .. Respondent Ms.S.V.Bharucha i/by Mr.K.B.Rao for appellant. Mr.Irani for respondent. CORAM: R.M.LODHA AND J.P.DEVADHAR, JJ. DATED:9thSeptember, 2004 P.C. Heard. 2. In the memorandum of appal, the following question of law has been proposed:- any basis. This issue has also beendecided in favour of the assessee in theassessee’s own case for the AY 1985-86(supra). In view of the facts of the casediscussed above and being consistent withthe precedent, we decide this issue infavour of the assessee. The findings ofthe learned CIT(A) are, therefore,upheld."4. The learned counsel for the revenue is not in aposition to tell us anything further in respect ofthe order passed for the assessment year 1985-86.5. In Commissioner of Income Tax, Bombay City IIv. Bombay Samachar Ltd., 74 ITR 723, the DivisionBench of this court observed thus-"As we have already pointed out, it isundisputed that the amounts borrowed fromoutsiders on which interest has been paidhave been used for the purpose of thebusiness of the assessee. It appears tohave been the view of the Income-taxOfficer that if the assessee had collectedthe outstandings which were due to it fromothers, it would have been able to reduceits indebtedness and thus save a part ofthe interest which it had to pay on its ownborrowings. The assessee, therefore, wasnot justified in allowing its outstandingsto remain without charging any interestthereon while it was paying interest on theamounts borrowed by it. To the extent,therefore, to which it would have been in aposition to collect interest on theoutstandings due to it from others, itcould not be permitted to claim interestpaid by it to outsiders. In our opinionthe view taken by the Income-tax Officer isclearly unsustainable. As has been pointedout by the Madhya Pradesh High Court in RamKishan Oil Mills v. Commissioner ofIncome-tax the only conditions required tobe satisfied in order to enable theassessee to claim a deduction in respect ofthe interest under section 10(2)(iii) are,firstly, that money must have been borrowedby the assessee; secondly, it must havebeen borrowed for the purpose of business 3and, thirdly, the assessee must have paidinterest on the said amount and claimed itas a deduction. It is not the requirementof the provision that the assessee mustfurther show that the borrowing of thecapital was necessary for the business sothat if at the time of borrowing theassessee had sufficient amount of its own,the deduction could not be allowed.Similarly, the Madras High Court in AmnaBai Hajee Issa v. Commissioner ofIncome-tax has held that in decidingwhether a claim for interest on borrowingcan be allowed the fact that the assesseehad ample resources at its disposal andneed not have borrowed, is not a relevantmatter for consideration. The matter to bedecided is whether the amount of interestwas paid in fact in respect of the capitalborrowed for business.The view taken by the Income-taxOfficer, therefore, that the assessee couldhave decreased the extent of its borrowingsby collecting its outstandings and,therefore, would not be entitled to claiminterest paid by it on borrowed capital isnot capable of being sustained. TheAppellate Assistant Commissioner’s viewthat the assessee had diverted the capitalborrowed by it for making advances to theBombay Chronicle Pvt.Ltd. or to Messrs.Cama Norton & Co. is clearly wrong on thefacts of the case. The ground on which theAppellate Assistant Commissioner hasdisallowed the claim, therefore, is notcapable of being sustained." 6. The Tribunal’s view, thus, cannot be faulted. 7. No substantial question of law arises. Dismissed in limine. (R.M.LODHA, J.) (J.P. DEVADHAR, J.)