Interest on loan taken to invest in a subsidiary is allowable as a deduction: Bombay HC
Interest on loan taken to invest in a subsidiary is allowable as a deduction: Bombay HC
PCIT Vs Videocon Industries Ltd. & Anr (Bombay High Court) (Income Tax Appeal No.434 of 2018)
Facts:
1. The appeal raised two substantial questions of law concerning the disallowance of interest expenses on loans used to purchase shares of subsidiary company.
2. The Revenue argued that the funds were diverted for non-business purposes, while the assessee contended that the investments were made for commercial expediency and in the normal course of business activities.
Hon Bombay HC held as below:
1. The investments made by the assessee in its subsidiary were for business purposes, as approved by the Board of Directors.
2. Moreover, the transactions were deemed commercially expedient due to the high valuation of the telecom business at the relevant time.
3. Both CIT(A) and ITAT had arrived at the fact finding that the investments were linked to the assessee’s business interests and were made in accordance with its normal course of business activities.
4. As such, the interest paid on the funds utilized for these investments was deemed allowable expenditure under Section 36(1)(iii) of the Income Tax Act.
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