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Section 36(1)(iii) of the Income-tax Act, 1961 - Interest on borrowed capital - Assessment year 1984-85 - Assessee-company had borrowed certain sum from a bank and had paid interest on same - Assessee had also advanced interest-free loan to its sister concern and claimed deduction of interest paid on sum borrowed from bank - Assessing Officer disallowed said claim on ground that assessee had made interest-free advances out of funds borrowed from bank on which interest had been paid - Whether since assessee had sufficient share capital, surplus and reserve available with it from which it had paid interest- free advances to its sister concern, disallowance of interest on borrowed fund could not be made - Held, yes CASE REFERRED TO CIT v. Radico Khaitan Ltd. [2005] 274 ITR 354/ 142 Taxman 681 (All.) [Para 5]. ORDER 1. The Income-tax Appellate Tribunal, New Delhi, has referred the following question of law under section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') for opinion to this Court : "Whether, on the facts and in the circumstances of the case, the Hon'ble ITAT was justified in confirming the deletion of Rs. 1,81,000 being disallowance of interest ?" The present reference relates to the assessment year 1984-85. 2. Briefly stated the facts giving rise to the present reference are as follows:- The respondent-assessee has been assessed to income-tax in the status of a company. During the assessment year under consideration, it had advanced a sum of Rs. 37,47,583 to its sister concern, namely, M/s. Prem Engineering Works (P.) Ltd. on various dates. Whereas the services provided by the said sister concern for job work came to the extent of Rs. 21,58,191. The respondent-assessee had also the opening debit balance of Rs. 30,34,337 in the name of sister concern. The Assessing Officer was of the view that the respondent-assessee having paid interest on overdraft facilities, it should not make any interest-free advances to its sister concern and, accordingly, disallowed a sum of Rs. 1,81,000 from the interest paid on overdraft. Feeling aggrieved, respondent-assessee preferred appeal before the Commissioner of Income-tax (Appeals) who has…

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