India: Interest incurred to facilitate share acquisition by subsidiary treated as deductible business expense (Supreme Court decision)
Even though borrowed funds were not used by the taxpayer to earn profits in its own business, the interest was incurred “for the purposes of business.”
The Supreme Court held that interest incurred by the taxpayer on borrowed funds, which the taxpayer advanced to a subsidiary to facilitate the subsidiary’s acquisition of shares in another company, was a deductible business expense because even though the borrowed funds were not used by the taxpayer to earn profits in its own business, the interest was incurred “for the purposes of business.”
The court clarified that the term “for the purposes of business” must be understood to have a broader meaning than simply “for the purpose of earning income.”
The case is: L.K. Trust v. CIT (Civil Appeal No. 527/2012)
Read a May 2026 report prepared by the KPMG member firm in India