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Section 36(1)(iii) of the Income tax Act, 1961 - Interest on borrowed capital - Assessee borrowed certain funds which were utilized to subscribe to equity capital of subsidiary company - Subsidiary company used said funds for purpose of acquiring a hotel - Assessee paid interest on borrowed money and claimed deduction for same under section 36(1)(iii) - Assessing Officer disallowed claim of assessee - Tribunal, however, allowed assessee's claim - On revenue's appeal, it was noticed that assessee was in business of owning, running and managing hotels and, for effective control of new hotel acquired by assessee under its management it had invested in a wholly owned subsidiary - Whether in aforesaid circumstances, interest on borrowed capital would be treated as expenditure incurred for business purposes and thus, it was allowable under section 36(i)(iii) - Held, yes [In favour of assessee] CASES REFERRED TO S.A. Builders Ltd. v. CIT (Appeals) [2007] 288 ITR 1 / 158 Taxman 74 (SC) (para 2). Sanjeev Sabharwal and Ms. Suruchi Aggarwal for the Appellant. O.S. Bajpai, V.N. Jha, Manswani Bajpai and Sashwat Bajpai for the Respondent. JUDGMENT 1. The respondent-assessee had borrowed certain funds which were utilized by the assessee to subscribe to the equity capital of the subsidiary company, namely, M/s. Tulip Star Hospitality Services Ltd. This subsidiary company used the said funds for the purpose of acquiring the Centaur Hotel, Juhu Beach, Mumbai, which is now functioning as "The Tulip Star, Mumbai". The assessee paid interest on the borrowed money. This interest liability incurred by the assessee was claimed by it as deduction on the ground that it was business expenditure. The Assessing Officer (AO) refused to allow this expenditure. However, the Commissioner of Income-tax (Appeals) reversed the decision of the Assessing Officer and the opinion of the Commissioner of Income-tax (Appeals) has been confirmed by the Income-tax Appellate Tribunal (ITAT) by the impugned orders which relate to different assessment years. Challenging the said orders, these appeals are preferred. 2. A perusal of the orders passed by the Tribunal would reveal that it is noted by the…

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