Sec. 14A of the Income Tax Act
This query is : Resolved
C V RATNAM DHAVEJI
(Querist)
02 January 2009
Pl express your opinion with supporting case laws if any
A widely held Public Limited Company (Say A Ltd, a holding company of several other companies) invests Rs.30 Lakhs in a private limited company (Say B Pvt Ltd) by way of equity capital out of proceeds of its own equity (not from borrowed funds) say in AY 2003-04. B Pvt Ltd is regular in paying dividend to its shareholders incl. A Ltd.
In AY 2006-07, A Ltd for its general business purposes including investment in capital of various private limited companies, borrows money on interest from B Pvt Ltd Rs.20L at the ruling market interest rates on the basis of a loan agreement with all usual terms and conditions
The Assessing Officer (AO) while assessing the income of A Ltd would like to invoke the provisions of Sec 14A holding that the loan is nothing but withdrawl of capital investment in the guise of loan and investments are made in other companies after taking this loan.
IS THE ACTION OF AO JUSTIFIED?
A widely held Public Limited Company (Say A Ltd, a holding company of several other companies) invests Rs.30 Lakhs in a private limited company (Say B Pvt Ltd) by way of equity capital out of proceeds of its own equity (not from borrowed funds) say in AY 2003-04. B Pvt Ltd is regular in paying dividend to its shareholders incl. A Ltd.
In AY 2006-07, A Ltd for its general business purposes including investment in capital of various private limited companies, borrows money on interest from B Pvt Ltd Rs.20L at the ruling market interest rates on the basis of a loan agreement with all usual terms and conditions
The Assessing Officer (AO) while assessing the income of A Ltd would like to invoke the provisions of Sec 14A holding that the loan is nothing but withdrawl of capital investment in the guise of loan and investments are made in other companies after taking this loan.
IS THE ACTION OF AO JUSTIFIED?
02 January 2009
A Ltd has to prove that Rs 20 lakhs borrowed is for its business purposes otherwise the view of the AO will sustain.
C V RATNAM DHAVEJI
(Querist)
07 December 2009
Pl elaborate
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