IT Appeal Nos. 1475 To 1477 (Bom) of 1980 [Assessment Years 1973-74 to 1975-76]. Case: Cadbury Fry (India) Ltd. Vs Income-Tax Officer.. Bombay ITAT High Court

Case NumberIT Appeal Nos. 1475 To 1477 (Bom) of 1980 [Assessment Years 1973-74 to 1975-76]
JudgesShri K. T. Thakore, A.M.
IssueDirect Taxation
Citation1982 (2) ITD 435 (Mum)
Judgement DateMarch 25, 1981
CourtBombay ITAT High Court


Shri K. T. Thakore, A.M.

1 to 5. [These paras are not reproduced here as they involve minor issues.]

  1. The next contention raised in these appeals relates disallowance of interest on bank overdraft as indicated below:

    Assessment year 1973-74

    Rs. 2,93,277

    Assessment year 1974-75

    Rs. 2,82,638

    Assessment year 1975-76

    Rs. 2,13,379

    For the assessment year 1973-74, the ITO disallowed a sum of Rs. 3 lakhs out of claim for deduction of interest of Rs. 3,32,612 by way of overdraft interest on bank loans. For the assessment year 1974-75, the ITO disallowed a sum of Rs. 2,74,215 while in the assessment year 1975-76 he disallowed a sum of Rs. 1,52,543 out of interest paid on bank loans. The ITO found that the assessee had advanced a sum of Rs. 24 lakhs to one Induri Farms Ltd., a subsidiary of the assessee, free of interest. He also found certain advances made to staff members free of interest. We are not concerned with the second advances made by the assessee in the present appeals. The assessees contention in regard to the loan to Induri Farms Ltd. Was that cows milk and eggs were in short supply in the market and, therefore, in order to ensure adequate supply, the assessee had given interest-free loan to the said party. It was intended that the advance so made was in the curse of assessees business and, therefore, the question of disallowance of interest on bank overdraft did not arise. The Commissioner (Appeals), however, relying on the decision in the case of CIT v. United Breweries [1973]89ITR17(KAR) held that the loan advanced to Induri Farms without interest could not be said to been the assessees business interest and, therefore, disallowance of interest as is attributable to the loan advanced to the Induri Farms should be disallowed. In view of the matter, therefore, he upheld the disallowance as addicted above.

  2. Before us the learned representative of the assessee contended that Induri Farms used to supply raw materials like cows milk and eggs to the assessee. Though it was true that the said company was a wholly-owned subsidiary of the assessee-company, the advance made to Induri Farms was in the cores of the assessees business, then the question whether interest was charged thereon or not is clearly immaterial. He referred to the decisions reported at T. J. Lalvani v. CIT [1970]78ITR176(Bom), CIT v. Rohtas Industries Ltd. [1979]120ITR110(Cal) CIT v. Mysore Sugar Co. Ltd. [1962]46ITR649(SC), CIT v. Bombay Samachar Ltd. [1969]74ITR723(Bom), CIT v. Pudukottai Co. (P.) Ltd. [1972]84ITR788(Mad) and CIT v. Carew & Co...

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