Case 1: Interest paid on loan for investing in subsidiary is not a capital expenditure
In a legal matter between Principal Commissioner of Income Tax Versus Videocon Industries Ltd. & another, the Bombay High Court recently drew a distinction between interest on borrowings by the holding company for investing in its subsidiary and interest on borrowings for other capital expenditure.
Videocon, the holding company, had a larger interest in one of its subsidiaries, and hence borrowed from Central Bank of India and invested the proceeds back-to-back in the shares of the subsidiary to beef up its financial muscles. The Bombay High Court upheld the view of a tribunal that it wasn’t a regular investment.
Had a person borrowed for investment in the market, the related interest would be no doubt a capital expenditure not allowable as deduction under section 36. But this was a case of nursing its own baby and hence the interest was as good as the one paid for its own business. Hence it passed muster as a business expenditure eligible for deduction in the assessment of the parent company.
The author feels that while the Bombay High Court is right it is for the Parliament to give up the farce of carrying out independent assessments of holding company and its subsidiary when in truth they were as one as Siamese twin!
Case 2: Reopening of IT assessment cannot be done at the whims of the assessing officer
In one Mira Bhavin Mehta vs Income Tax Officer matter, the Bombay High Court reiterated why there was in place a regime of income reassessment or reopening of assessment. It wasn’t for the assessing officer to wake up later on leisurely after completing a slipshod original assessment but for him to take notice of fresh evidence or documents that might have emerged later on after the original assessment was completed.
Change of opinion was whimsical whereas emergence of fresh facts isn’t so. The regime in place wasn’t to foster whimsical behaviour of the assessing officer but to aid genuine cases of income escaping assessment initially but capable of being assessed on the strength of new materials.
Case 3: Judicial decisions cannot be challenged as abrogating fundamental rights
While justice delayed is undoubtedly justice denied, the Supreme Court of India recently reiterated the law laid down in Naresh Shridhar Mirajkar vs. State of Maharashtra that a competent judicial officer’s decision cannot be challenged as violating one’s fundamental rights.
An alleged criminal facing trial had pleaded for expeditious trial before the High Court in 2016. Upon its inability to do so even after seven years, he approached the Apex Court under article 32 that his right to freedom under article 21 was abridged by incarcerating him unnecessarily. The Supreme Court however expressed its helplessness in the face of lack of power to order the High Court to order an expeditious trial. The Supreme Court bemoaned the lack of power in this regard unlike High Courts that have supervisory powers over courts and magistrates coming under its jurisdiction.
Such petitions under article 32 spring up every now and then in a country when an alleged criminal can languish in jail as an undertrial for years only to be let off for lack of evidence or otherwise. It is not only he but his entire family suffers when there is such a miscarriage of justice due to delay.
That in Indian jails as many as two-thirds of its inmates are undertrials heightens the global problem in the Indian context. While Brazil and a few US states have ushered in conjugal union for the jail mates at prescribed intervals and almost all the jails engage them in meaningful pursuits for a small remuneration, they are all at best half measures when it turns out in hindsight that an undertrial was unfairly and needlessly incarcerated.
In this context, work from jail clamours for attention. A geek undertrial can possibly continue as an employee — unless he is languishing in jail for duping his employer — and earn well though his spirits may be down. While we in India talk incessantly of judicial reforms, a thought should be spared for jail reforms as well.
—The author, S Murlidharan, is a Chartered Accountant and legal expert, and share comments and interpretations to important court rulings and judgements. The views expressed are his own and personal.
Read the previous Legal Digest columns here
(Edited by : C H Unnikrishnan)
First Published: Mar 1, 2024 10:55 AM IST
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