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15-04-2019, RTC Restaurants, Section 36(l)(iii), Tribunal Delhi

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5 days 20 hours ago - 5 days 20 hours ago #9164 by amit
Section - 36(l)(iii)
Order Date - 15-04-2019
Favouring - Assessee
Court - Tribunal Delhi
Appellant - RTC Restaurants (India) Ltd.
Respondent - DCIT
Citation - 419Taxpundit199
Appeal No. - ITA.No.2942/Del./2016
Asstt. Year - 2011-2012



This appeal by assessee has been directed against the order of Ld. CIT(A)-7, New Delhi, Dated 31st March, 2016, for the A.Y. 2011-2012, challenging the order of Ld. CIT(A) in upholding the disallowance of interest to the tune of Rs.19,90,220/- on term loan paid by the assessee company on the loan raised from the Bank.

2. The A.O. noted that assessee-company had taken term loan from Catholic Syrian Bank of Rs.275 lakhs and diverted the raised fund to TRR Properties Limited as an interest free advance. The interest paid on term loan was Rs.19,90,220/- during the year. Since the raised fund had not been used by the assessee for its business purposes, the same was disallowed.

3. The assessee challenged the addition before Ld. CIT(A). The written submissions of the assessee is reproduced in the appellate order, in which the assessee explained that assessee-company is running a chain of restaurants by the name of “Ruby’s Tuesday” and has various outlets throughout India. The restaurant at Mumbai called “CR-2 Unit” of Ruby’s Tuesday was run in a rented property and rent of Rs.54 lakhs was paid annually. The said property is owned by TRR Properties Limited. The said company [TRR Properties Limited] had taken a loan of Rs.2.75 crores for purchase of this property. The said company, during the year requested the tenants i.e., the assessee-company that in case a sum of Rs.2.75 crores could be advanced by the assessee company to M/s. TRR Properties Limited, the said company would allow the user of this property without any rent. Thus, on this arrangement, assessee-company raised a loan from Catholic Syrian Bank and advanced the same to the landlord namely TRR Properties Limited. The assessee-company in this way saved a rent of Rs.54 lakhs and gained Rs.34,09,780/- [Rs.54 lakhs (-) Rs.19,90,220/-]. It was further submitted that assessee is a holding company of TRR Properties Limited till 31st March, 2010, a rent of Rs.4,50,000/- per month was being paid to the landlords i.e., TRR Properties Limited. The assessee company purchased all the shares of the landlord company and as such the landlord TRR Properties L mited becsme a 100% subsidiary company of the assessee-company. TRR Properties Limited passed resolution that the company required to pay loan of approximately Rs.3.30 crores to M/s. Hotz Industries Ltd., and Bank. It was decided to request the holding company i.e., assessee-company to provide the loan with the condition that till this loan is repaid by TRR Properties Ltd., it shall not charge rent in respect of the property at Mumbai. The assessee-company acknowledge the request of the subsidiary company in their meeting, in which it was decided to grant loan of Rs.3.3 crores to its subsidiary company TRR Properties Ltd., on the condition that no rent for the Mumbai property being used by the assessee
company be paid till the entire loan is paid on. The assessee company, accordingly, took loan from the Bank. Copy of the Rent Agreement and balance sheet were provided. M/s. TRR Properties Limited became a subsidiary of the assessee company on 26th March, 2010 i.e., in the year immediately preceding under appeal. The holding company i.e., assessee company is by itself a subsidiary of M/s. Hotz Industries Ltd., since June 1999, which is not a subsidiary of any other company. The above loan of Rs.3.3 crores was given to its subsidiary company to buy the property. The details of the loans raised by TRR Properties Limited from the assessee-company was utilised for repayment of loan of M/s. Hotz Industries Ltd., and repayment to the Bank for closure of loan already taken at the time of purchase of the property and other misc payments of business, totaling to Rs.3,29,99,977/-.

3.1. The Ld. CIT(A) noted the above contention of the assessee-company that in this way the assessee-company saved the amount of the rent. The Ld. CIT(A) did not accept the contention of the assessee-company. The Ld. CIT(A) noted that loan raised by the assessee company has in effect been utilised by the subsidiary company of the assessee to repay the outstanding loan of the holding company of the assessee-company [M/s. Hotz Industries Ltd.,] The Ld. CIT(A) also considered the Leave and License Agreement between assessee-company and TRR Properties Ltd., He has no iced that the said agreement is actually between TRR Properties Ltd., and M/s. Round the Clock Stores Ltd., and not the assessee-company. The said agreement is valid for 33 months up to 15th June, 2007. It was, therefore, noted that the interest payment on the loan, cannot be treated as wholly and exclusively incurred for the purpose of business. Therefore, addition was confirmed.

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