CIT v. Radico Khaitan Ltd ()

INCOME TAX

--Business deduction under section 36(1)(iii)----INTEREST ON BORROWED CAPITALInterest-free advances to sister-concern--The assessee-company had advanced a sum of Rs. 17.19 lakhs to its sister concern. It had not charged any interest from the said company whereas it had been charging interest from other debtors. It had borrowed huge sum from the banks and the financial institutions. The AO had disallowed the amount towards proportionate interest on the said advances. The Tribunal, after examining the balance sheet, had come to the conclusion that the assessee-company was having sufficient fund on account of share capital, share application money, reserve and surplus and was having sufficient fund at its disposal out of which a small sum of Rs. 17.19 lakhs could easily be diverted. Held: The Tribunal had recorded a finding that there was sufficient fund available with the assessee in the form of share capital, share application money, reserve and surplus other than borrowed money for diverting certain sums to sister concern. Thus, it could not be said that amount of loan advanced to sister concern was out of borrowed fund. Proportionate interest therefore, could not be disallowed.

Income Tax Act, 1961 s.36(1)(iii)

INCOME TAX

--Head of income----BUSINESS INCOME OR INCOME FROM OTHER SOURCESInterest received on loans and advances made to debtors--The assessee-company had received interest on loans/advances made by it to its debtors. It claimed that the same be taxed under the head Income from business or profession Held: The amount of interest was not relatable to any late payment of the invoices/bills or compensation/damages. Thus, the amount of interest, which the assessee had received could not, by any stretch of imagination, be treated as income from business but is to be treated under the head lncome from other sources .

Income Tax Act, 1961 s.14;

Income Tax Act, 1961, s.28(i);

Income Tax Act, 1961 s.56

INCOME TAX

--Investment allowance----CONDITION PRECEDENTManufacturing of item(s) mentioned in Eleventh Schedule--Assessee was engaged in manufacturing of beer, wine and other alcoholic items mentioned in Eleventh Schedule. During the relevant assessment year it installed telephone exchange in its fertilizer unit and claimed investment allowance. Held: Though assessee was not entitled to investment allowance in respect of manufacturing of any item mentioned in Eleventh Schedule, however, the telephone exchange installed in fertilizer unit was entitled to investment allowance as the telephone exchange would not be an office appliance but would fall under the term 'plant'.

Income Tax Act, 1961 s.32(A)

INCOME TAX

--Business deduction under section 36(1)(ii)----BONUS OR COMMISSIONEx gratia payment towards bonus-- Held: After omission of proviso to section 36(1)(ii) with effect from 1-4-1989, ex gratia payment towards bonus is allowable deduction.

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