S.A. BUILDERS LTD. vs. COMMNR. OF INCOME TAX, CHANDIGARH

C.A. No.-005811-005811 - 2006Supreme Court14 December 20066 pages
For Petitioner: S. JANANIFor Respondent: B. V. BALARAM DAS
AI SummaryRemanded

What did the Supreme Court hold?

The Supreme Court held that the disallowance of interest on borrowed funds advanced to a sister concern should be examined from the perspective of commercial expediency. The matter was remanded to the Tribunal for a fresh decision considering this aspect.

What were the facts?

The assessee advanced substantial amounts to its subsidiary without charging interest. The Assessing Officer disallowed proportionate interest on borrowed funds used for these advances. The CIT(A) partially allowed the assessee's claim, but the Tribunal and High Court upheld the disallowance.

What were the issues?

Whether interest on borrowed funds advanced to a sister concern without charging interest is disallowable, and if so, whether the test of commercial expediency should be applied.

Which sections of the Income-tax Act were involved?

Section 36(1)(iii)

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Cause title — parties, addresses and appearances
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 6 CASE NO.: Appeal (civil) 5811 of 2006 PETITIONER: S. A. Builders Ltd. .. Peti tioner RESPONDENT: Commissioner of Income Tax (Appeals) Chandigarh & Anr. .. Respondents DATE OF JUDGMENT: 14/12/2006 BENCH: S. B. SINHA & MARKANDEY KATJU

JUDGMENT: J U D G M E N T (Arising out of Special Leave Petition Nos. 21707-21710/2004) [with CA Nos. 5812 /2006 @ SLP(Civil) Nos. 1300-1301/2005] MARKANDEY KATJU, J. Leave granted. These two appeals involve common questions of law and fact and hence are being disposed of by a common judgment. Since the leading case is that of S.A. Builders [SLP(C) 21707- 21710/2004], we shall be taking note of the facts of this case. These appeals have been filed against the impugned judgment of the Punjab and Haryana High Court dated 13.5.2004 in Income Tax Appeal Nos. 6, 7, 119 and 120 of 2003, and the judgment dated 21.5.2004 in ITA No. 117/118 of 2003. Heard learned counsel for the parties and perused the record. During the course of the proceeding for the relevant assessment year(s), th

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