13 July 2012
Dear Friend, Since loan from Holding to its 100% subsidiary is exempted under companies act, 1956 as well as Income tax act. Since the repayment of loan by subsidiary to the holding company is not deemed dividend.
13 July 2012
Diversion of borrowals to sister concerns - Borrowed fund advanced to a third party should be for commercial expediency, if it is sought to be allowed under section 36(1)(iii). It is not in every case that interest on borrowed loan has to be allowed if the assessee advances it to a sister concern. It all depends on the facts and circumstances of the respective case. For instance, if the directors of the sister concern utilize the amount advanced to it by the assessee for their personal benefit, obviously it cannot be said that such money was advanced as a measure of commercial expediency. However, money can be said to be advanced to a sister concern for commercial expediency in many other circumstances. Where holding company has a deep interest in its subsidiary, and the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the holding company would ordinarily be entitled to deduction of interest on its borrowed loans - S.A. Builders Ltd. v. CIT [2007] 158 Taxman 74 (SC).
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