Director of IT v. Besix Kier Dabhol SA

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The Tax Publishers2013 TaxPub(DT) 1472 (Bom-HC) : (2013) 051 (I) ITCL 0512 INCOME TAX ACT, 1961 --Business deduction under section 36(1)(iii)--Interest on borrowed capital Disallowance of interest on basis of thin capitalisation rule--Assessee-company incorporated under the laws of Belgium had to carry out the project of construction of fuel jetty in India. Its equity capital was divided in the ratio of 60:40 between the two joint venture partners and it also borrowed from its shareholders in the same ratio as the equity shareholding resulting in abnormal debt-equity ratio of 248 : 1. Assessee had paid interest to its joint-venture partners on a loan outstanding against it and had claimed deduction under section 36(1)(iii). Assessing officer disallowed the payment of interest. Held: Was not justified as there were no thin capitalization rules in force, therefore, the interest payment on debt capital could not be disallowed. Income Tax Act, 1961 Section 36(1)(iii) DTAA between India and Belgium Article 7 In the Bombay High Court S. J. Vazifdar & M. S. Sanklecha, J.J. Director of IT v. Besix Kier Dabhol SA ITA No. 776 of 2011 30 August, 2012 Income Tax Act, 1961, S. 36(1)(iii) & DTAA between India and Belgium, Art. 7 Decision: In assessees favour. Appellant by : Suresh Kumar SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 1472 (Bom-HC) : (2013) 051 (I) ITCL 0512

INCOME TAX ACT, 1961

--Business deduction under section 36(1)(iii)--Interest on borrowed capital Disallowance of interest on basis of thin capitalisation rule--Assessee-company incorporated under the laws of Belgium had to carry out the project of construction of fuel jetty in India. Its equity capital was divided in the ratio of 60:40 between the two joint venture partners and it also borrowed from its shareholders in the same ratio as the equity shareholding resulting in abnormal debt-equity ratio of 248 : 1. Assessee had paid interest to its joint-venture partners on a loan outstanding against it and had claimed deduction under section 36(1)(iii). Assessing officer disallowed the payment of interest. Held: Was not justified as there were no thin capitalization rules in force, therefore, the interest payment on debt capital could not be disallowed.

Income Tax Act, 1961 Section 36(1)(iii)

DTAA between India and Belgium Article 7

In the Bombay High Court

S. J. Vazifdar & M. S. Sanklecha, J.J.

Director of IT v. Besix Kier Dabhol SA

ITA No. 776 of 2011

30 August, 2012

Income Tax Act, 1961, S. 36(1)(iii) & DTAA between India and Belgium, Art. 7

Decision: In assessees favour.

Appellant by : Suresh Kumar