S. 36(1)(iii): S. A. Builders 288 ITR 1 (SC) to be reconsidered

ACIT vs. Tulip Star Hotels Ltd (Supreme Court)

The assessee borrowed funds and used it to subscribe to the equity capital of its subsidiary company. The subsidiary company used the said funds for the purpose of acquiring the Centaur Hotel, Juhu Beach, Mumbai. The assessee paid interest on the borrowed money and claimed that a deduction u/s 36(1)(iii). The AO rejected the claim though the CIT (A), Tribunal & High Court (338 ITR 482) allowed it by relying on S. A. Builders Ltd vs. CIT 288 ITR 1 (SC). It was held that as the assessee, being a holding company had a deep interest in its subsidiary, and hence if the holding company advanced borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the assessee would be entitled to deduction of interest on its borrowed loans. On appeal by the department, HELD by the Supreme Court: