Munjal Sales Corporation v. CIT & Anr.
INCOME TAX ACT, 1961
Business disallowance under section 40(b) - Interest to partners -Deduction claim under section 36(1)(iii)
Held: Section 40 was a corollary to sections 30 to 38 and its object was to put limitation on amount of deduction which assessee was entitled under sections 30 to 38. By enactment of Finance Act, 1992, every assessee had to establish its right to claim deduction under sections 30 to 38 and in case of firm, if it claims special deduction, it had also to prove that it was not disentitled to claim deduction by reason of applicability of section 40(b), therefore, in case of a firm to claim deduction in respect of interest paid on capital borrowed from third parties (apparently partners), it required to fulfill that it was entitled to claim deduction under section 36(1)(iii) and was not disentitled to claim such deduction on account of applicability of section 40(b)(iv).
Income-tax Act, 1961, Section 40(b)
A.Y. : 1993-94 to 1997-98
Decision: In favour of assessee
INCOME TAX ACT, 1961
Business deduction under section 36(1)(iii) -Allowability -Interest-free advances to its sister concerns
Assessee claimed deduction under section 36(1)(iii) was disallowed by department on ground that it had given interest-free advances to its sister concerns from interest-bearing loans taken from third parties. Tribunal deleted disallowance for assessment years 1992-93 and 1993-94, in view that assessee had given such advance from its own funds, but upheld disallowances for assessment years 1994-95 to 1996-97. Held: It was found that interest-free loans granted in year 1991 continued up to assessment year 1997-98; and it was advanced for business purpose; and interest paid to third parties (partners) did not exceed 18/12 per cent per annum, therefore, assessee was entitled to claim deduction under section 36(1)(iii).
Income-tax Act, 1961, Section 36(1)(iii)
A.Y. : 1993-94 to 1997-98
Decision: In favour of assessee
Case Law Analysis:CIT v. Abhishek Industries Ltd. [2006] 286 ITR 1/ 156 Taxman 257 (Punj. & Har.) [Para 2].