|Income Tax Appellate Tribunal
Section 36(1)(iii) IT Act | Notional Interest Cannot Be Added to Income When Loans Funded from Interest-Free Surplus: ITAT Delhi
The ITAT Delhi has ruled that tax authorities cannot impute notional interest on loans extended by a company to its subsidiaries if those loans are financed entirely from the company’s own interest-free surplus funds. This clarifies that Section 36(1)(iii) applies only to interest on borrowed capital, not internal fund allocation - a critical relief for corporate groups with strong internal liquidity.