The Bombay High Court in the case of PCIT v M/s Concentrix Services upheld that the interest paid on the borrowed fund for the purpose of acquiring a controlling interest in another company would be allowable business expenditure.
Respondent engaged in the business of providing IT-enabled services such as Call Centres, BPO services, etc. Respondent claimed expenses on account of interest and finance as an allowable expenditure u/s 36(1)(iii) during the relevant AYs. The expenses are in connection with loans taken for DBS Bank for the acquisition of a Company. The AO, however, disallowed the above interest and finance expenses claimed on the ground that it relates to the acquisition of shares of a foreign subsidiary and not related to the business of the Respondent.
The issue before the present court is that whether the Tribunal was justified in directing the AO to delete the disallowance u/s 36(1)(iii) of the IT Act without appreciating the fact that the acquisition of business by way of investing into shares of that company cannot be considered to be towards expenditure for assessee’s business.
The Appellant submitted that the interest on loan and finance expenditure on account of foreign exchange variations in the loan could not have been allowed as business expenditure on the ground that the Respondent is not in the business of investment of shares but in the business of Information Technology enabled Services, BPO and Call Centres.
The Coram constituting of Justice M.S. Sanklecha and Justice Nitin Jamdar held that the decision in CIT v Srishti Securities Pvt Ltd that the interest paid on the borrowed fund for the purpose of acquiring a controlling interest in another company would be allowable business expenditure applies in the present facts of the case. The Bench, however, ruled that the question does not give rise to any substantial question of law as it is essentially a finding in the above case and dismissed the case on the same basis.
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