| Case ID |
f8775cfc-4f58-4c3a-a0cb-5e7b78e08ea0 |
| Body |
View case body. Login to View |
| Case Number |
CIVIL APPEAL Nos. 5811 AND 5812 OF 2006 |
| Decision Date |
Dec 14, 2006 |
| Hearing Date |
|
| Decision |
The Supreme Court of India ruled in favor of the appellant, S.A. Builders Ltd, allowing the appeal against the dismissal of their claims regarding the disallowance of interest on borrowed funds. The court emphasized the need for a proper evaluation of whether the funds advanced to the sister concern were made for commercial expediency. The court noted that the previous judgments failed to adequately assess this aspect. The decision also highlighted that the expression 'for the purpose of business' is broad and should include expenditures incurred voluntarily for commercial expediency, even if they do not immediately result in profit. |
| Summary |
In the landmark case of S.A. Builders Ltd vs. Commissioner of Income Tax (Appeals), the Supreme Court of India addressed significant issues surrounding the allowability of interest on borrowed funds under the Income Tax Act, 1961. The court examined the implications of Section 36(1)(iii), which permits the deduction of interest paid on capital borrowed for business purposes. The core of the dispute arose from S.A. Builders Ltd's advances to its subsidiary, M/s. SAB Credits Limited, which were made without charging interest. The Assessing Officer initially disallowed a substantial portion of the claimed interest, asserting that the funds were diverted without proper justification. The case went through various levels of appeal, with the Tribunal siding with the revenue. However, the Supreme Court found that the lower courts failed to consider whether the advances were made as a measure of commercial expediency, a crucial aspect in determining the deductibility of interest. The ruling reinforces the principle that not all expenditures must directly correlate with immediate profit generation to be considered allowable under tax law. This case is pivotal in clarifying the interpretation of 'for the purpose of business' and emphasizes the importance of commercial practicality in financial dealings. The decision sets a precedent for future cases involving similar issues of tax deductions on interest, making it a critical reference point for tax law practitioners and businesses alike. |
| Court |
Supreme Court of India
|
| Entities Involved |
S.A. Builders Ltd,
M/s. SAB Credits Limited,
Commissioner of Income Tax (Appeals), Chandigarh
|
| Judges |
S.B. Sinha,
Markandey Katju
|
| Lawyers |
Nidhesh Gupta,
Vinod Shukla,
Deepak Goel,
Ms. S. Janani,
Ravindra Srivastava,
Ranvir Chandra,
Ms. Shilpa Singh,
B.V. Balaram Das
|
| Petitioners |
S.A. Builders Ltd
|
| Respondents |
Commissioner of Income Tax (Appeals), Chandigarh
|
| Citations |
2009 SLD 286,
(2009) 99 TAX 9,
(2007) 288 ITR 1
|
| Other Citations |
Not available
|
| Laws Involved |
Income Tax Act, 1961
|
| Sections |
36(1)(iii)
|