F.I Rebello, J.:— Admit on the following question:
“(A) Whether, on the facts and in the circumstance of the case and in law, the hon'ble Tribunal was justified in holding that the assessee-company had sufficient funds of its own for making the investments without using the interest-bearing funds even though the balance-sheet of the assessee-company as at March 31, 1999, shows that the assessee-company has no reserve or own funds for making the investments in the sister concern and, therefore, borrowed funds have been utilized and interest on these borrowed funds are rightly dis-allowed by the Assessing Officer ?”
2. We may also mention that in appeal memo the Revenue had raised the following question:
(B) Whether, on the facts and in the circumstance of the case and in law, the hon'ble Tribunal was right in holding that advances to sister con-cerns were for business purposes even though the assessee-company is not in the business of investments and there is nothing on record to suggest that the advances made to sister concerns were made for business pur-poses?
3. At the hearing of this appeal in so far as question (B) is concerned, con-sidering the judgment of the Supreme Court in S.A Builders Ltd. v. CIT (Appeals), [2007] 288 ITR 1, the learned counsel did not press that question and consequently we have not admitted the appeal on the said question. The Assessing Officer had recorded a finding that the sum of Rs. 213 crores were invested out of their own funds and Rs. 147 crores were invested out of borrowed funds and accordingly had disallowed the interest amounting to Rs. 4.40 crores calculated at 12 per cent, per annum for three months from January, 2000, to March, 2000. From the order of the Assessing Officer the assessee in respect of dis-allowance of interest amounting to Rs. 4.40 crores preferred an appeal to the Commissioner of Income-tax (Appeals). It was the contention of the assessee that the assessee had invested Rs. 389.60 in Reliance Gas Limited and Rs. 1.01 in Reliance Strategic Investments Limited. The assessee them-selves were in the business of generation of power. The companies in which the investments were made, were in the energy sector. Investments were made mainly during January, 2000, to March, 2000. It was the submission of the assessee that they had earned regular business income from distribution of power and investments made were in the companies in energy sector and were with a view to build long-term business prospects. Investments were in the regular course of business and accordingly no part of interest can be disallowed when the fund is utilized for the purpose of business. It was also pointed out that the respondent had borrowed Rs. 43.62 crores by way of issue of debentures and the said amount was utilised as capital expenditure and intercorporate deposit. It was the sub-mission that no part of the interest-bearing fund have gone into invest-ments in the two companies. In so far as funds are concerned it was pointed out that income from operation of the company was Rs. 418.04 crores which was evenly distributed. Considering this, till December, 1999, the appellant had earned Rs. 313.53 crores from its operation. It had raised capital of Rs. 7.90 crores and had also received interest-free deposit of Rs. 10.03 crores. Also it had recovered Rs. 39.04 from its debtors.
4. It was also pointed out that considering the balance-sheet for the year ending March 31, 2000, the availability of interest-free fund was as under:
Rs.
Share capital
180.00
Reserves and surplus
120.80
Depreciation reserves
95.39
Total interest-free fund
398.19
5. It was, therefore, submitted that from the analysis of the balance-sheet as on March 31, 2000, the respondent had enough interest-free funds at its disposal for making investment.
6. In the light of the above material the Commissioner of Income-tax (Appeals) held that he agreed with the contention advanced by the assessee that they had enough interest-free fund at their disposal for investment and accordingly deleted the addition of Rs. 4,40,00,000 made by the Assessing Officer and directed him to allow the same under section 36(1)(iii) of the Income-tax Act.
7. The Revenue being aggrieved by the order preferred an appeal to the Tribunal. Before the Tribunal it was sought to be contended that the share-holders funds of Rs. 172,10,88,000 were utilised for the purchase of fixed assets shown in schedule D in terms of the balance-sheet as on March 31, 1999. It was submitted that the assessee had no reserve or own funds for making the investments in the sister concern and, therefore, borrowed funds had been utilised and interest on these investments are for non-business purposes and hence rightly disallowed by the Assessing Officer.
8. On the other hand on behalf of the assessee the learned counsel relied on the order of the Commissioner of Income-tax (Appeals) and submitted that the assessee had total interest-free fund of Rs. 398 crores.
9. From the facts on record the learned Tribunal was pleased to record a finding that the assessee had sufficient funds of its own for making the investment without using the interest-bearing funds and accordingly upheld the order of the Commissioner of Income-tax (Appeals). It is this order which is the subject matter of the present appeal.
10. At the hearing of this appeal on behalf of the appellant learned counsel submits that the order of the Tribunal is perverse inasmuch as the Tribunal ignored the fact that the respondent-assessee had no interest-free funds of its own. It is pointed out that in so far as the shareholders funds are con-cerned, in terms of the balance-sheet as on March 31, 1999, they were uti-lised for the purpose of purchase of fixed assets shown in schedule D.
11. On the other hand on behalf of the assessee the learned counsel submits that the assessee-company had generated sufficient interest-free fund of its own which it utilized for its business, including investment in sister con-cerns and consequently no fault could be found with the order of the Com-missioner of Income-tax (Appeals) and/or the Tribunal. It was further sub-mitted that once monies are available, it is for the assessee to take a business decision for application of funds. The submission is that where there are both borrowed funds as also interest-free funds, discretion lies in the hands of the assessee for utilisation of those funds. Reliance for that purpose was placed on the judgment of the Calcutta High Court in the case of Woolcombers of India Ltd. v. CIT (Central), [1982] 134 ITR 219. It was further submitted that the view taken by the Calcutta High Court had found approval by the Supreme Court in East India Pharmaceutical Works Ltd. v. CIT, [1997] 224 ITR 627 (SC).
12. We have heard learned counsel for both the parties. In our opinion, the very basis on which the Revenue had sought to contend or argue their case that the shareholders funds to the tune of over Rs. 172 crores was utilised for the purpose of fixed assets in terms of the balance-sheet as on March 31, 1999, is fallacious. Firstly, we are not concerned with the balance-sheet as on March 31, 1999. What would be relevant would be the balance-sheet as on March 31, 2000. Apart from that, the learned counsel has been unable to point out to us from the balance-sheet that the balance-sheet as on March 31, 1999, showed that the shareholders funds were utilised for the purpose of fixed assets. To our mind the profit and loss account and the balance-sheet would not show whether the shareholders funds have been utilised for investments. The argument has to be rejected on this count also.
13. Apart from that we have noted earlier that both in the order of the Com-missioner of Income-tax (Appeals) as also the Appellate Tribunal, a clear finding is recorded that the assessee had interest-free funds of its own which had been generated in the course of the year commencing from April 1, 1999. Apart from that in terms of the balance-sheet there was a further availability of Rs. 398.19 crores including Rs. 180 crores of share capital. In this context, in our opinion, the finding of fact recorded by the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tri-bunal as to availability of interest-free funds really cannot be faulted. If there be interest-free funds available to an assessee sufficient to meet its investments and at the same time the assessee had raised a loan it can be presumed that the investments were from the interest-free funds available. In our opinion, the Supreme Court in East India Pharmaceutical Works Ltd. v. CIT, [1997] 224 ITR 627 had the occasion to consider the decision of the Calcutta High Court in Woolcombers of India Ltd., [1982] 134 ITR 219 where a similar issue had arisen. Before the Supreme Court it was argued that it should have been presumed that in essence and true character the taxes were paid out of the profits of the relevant year and not out of the overdraft account for the running of the business and in these circumstances the appellant was entitled to claim the deductions. The Supreme Court noted that the argument had considerable force, but considering the fact that the contention had not been advanced earlier it did not require to be answered. It then noted that in Woolcombers of India Ltd.'s case, [1982] 134 ITR 219 the Calcutta High Court had come to the conclusion that the profits were sufficient to meet the advance tax liability and the profits were deposited in the over draft account of the assessee and in such a case it should be presumed that the taxes were paid out of the profits of the year and not out of the overdraft account for the running of the business. It noted that to raise the presumption, there was sufficient material and the assessee had urged the contention before the High Court. The principle, therefore, would be that if there are funds available both interest-free and over draft and/or loans taken, then a presumption would arise that investments would be out of the interest-free fund generated or available with the company, if the interest-free funds were sufficient to meet the investments. In this case this presumption is established con-sidering the finding of fact both by the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal.
14. Considering the above, in our opinion, there is no merit in this appeal which is accordingly dismissed.