Tax Case (Appeal) No. 18 of 2010. Case: Commissioner of Income Tax Vs M/s. Tenneco RC India Pvt. Ltd.. High Court of Madras (India)
| Case Number | Tax Case (Appeal) No. 18 of 2010 |
| Counsel | For Appellant: Mr. T. Ravi Kumar, Standing Counsel and For Respondents: Mr. T. N. Seetharaman, Adv. |
| Judges | Chitra Venkataraman and K.B.K. Vasuki, JJ. |
| Issue | Direct Tax |
| Judgement Date | July 01, 2013 |
| Court | High Court of Madras (India) |
Judgment:
Chitra Venkataraman, J.
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The only substantial question of law on which this Tax Case Appeal, filed against the order of the Tribunal, was admitted is as to whether the Appellate Tribunal was right in holding that the exercise of power under Section 263 by the Commissioner of Income Tax was erroneous. It is seen from the show-cause notice issued under Section 263 of the Income Tax Act dated 20.02.2009, that the assessee had claimed interest of Rs. 5,29,72,918/- payable on the loans taken on a sum of Rs. 27,29,01,157/- and Rs. 6,00,00,000/- by way secured loan and unsecured loan respectively. Since the assessee had given interest-free advance of Rs. 12,69,21,989/- to its subsidiary company, namely, Renowned Auto Products Manufacturers Ltd., wherein the assessee had 83% share, the Commissioner held that the interest was not allowable under Section 36(1)(iii) to the extent the borrowed funds not utilised for the purpose of business. Pointing out that the Assessing Officer had not examined the transaction of the assessee with Renowned Auto Products Manufacturers Ltd. and whether the loan advanced was for the purpose of the assessee's business, the Commissioner called upon the assessee to show cause as to why the order of assessment should not be set aside or modified.
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After hearing the assessee, the Commissioner passed an order directing the Officer to look into the aspect of commercial expediency which compelled the assessee to advance a sum of Rs. 12,69,21,989/-. The Commissioner pointed out that the amount advanced was more than 46% of its entire liability towards the secured loan. In his proceedings, the Commissioner pointed out that the company had acquired 83% of the shares of Renowned Auto Products Manufacturers Ltd. in August 1996, by which time, the borrowing company had become a sick company, thereby increasing the financial burden of the assessee company.
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Referring to the proceedings before the Company Law Board, the Commissioner viewed that the company, in their own interest, infused funds in the sick company and that the same had nothing to do with the protecting of either the income base or the asset base of the assessee company or to further its own interest. The borrowing was made by the assessee company in its own name for investing it in Renowned Auto Products Manufacturers Ltd. Referring to the decision reported in [2007] 288 ITR 1 (S.A. Builders Ltd. Vs. CIT), the Commissioner held that the onus was on the...
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