JUDGMENT CHITRA VENKATARAMAN, J 1. The Revenue has come up on appeal as against the order of the Income Tax Appellate Tribunal, Madras 'C' Bench dated 24.03.2005 in ITA.No.588/Mds/2000 raising the following substantial questions of law:- "1. Whether in the facts and circumstances of the case, the Tribunal was right in allowing deduction of a sum of Rs.24,00,000/- being the interest attributable to the borrowed funds of Rs1.50,00,000/- advanced by the assessee as share application money to its sister concern M/s.Sri Kaliswari Metal (P) Ltd ? 2. Whether in the facts and circumstances of the case interest on bank loan for the purpose of investing in shares would be deductible as a business expenditure, merely because the company whose shares are being acquired is a supplier of the assessee ?" 2. The assessee is a partnership firm engaged in the manufacture and sale of fancy fireworks. In respect of the assessment year 1996-97, the Assessing Authority disallowed a sum of Rs.24,00,000 being the interest on the sum of Rs.1,50,00,000/-advanced to sister concern M/s.Sri.Kaliswari Metal (P) Ltd. The said sum was given by way of share advance money from out of the interest bearing bank borrowals. The Assessing Authority pointed out that the said Kaliswari Fireworks Ltd is a sister concern of the assessee firm and it had issued equity shares to the assessee firm during the next accounting year. Since the amount borrowed from the bank from Current account was utilised by the assessee for non-business purposes viz., investment in the sister concern, such lending could not be said to be for the purpose of business of the assessee. Thus, the question of allowing interest under Section 37(iii) of the Income Tax Act, 1961 would not arise. Aggrieved by that order, the assessee filed appeal before the Commissioner of Income Tax (Appeals). 3. A perusal of the order of the Commissioner of Income Tax (Appeals) would show that the assessee, being a manufacture of various types of fireworks, required raw material viz., Aluminium powder. Sri Kaliswari Private Limited is a company promoted by the group, in which, the partners of the appellant firm are members. The assessee took a decision to subscribe to the shares of Sri Kaliswari Privated Limited so as to avail uninterrupted supply of aluminium powder for the business. Sri Kaliswari Private Limited is a company promoted by the group, in which, the partners of the appellant firm are members. The assessee took a decision to subscribe to the shares of Sri Kaliswari Privated Limited so as to avail uninterrupted supply of aluminium powder for the business. The assessee also took the stand that apart from the sister concern, there are two companies belonging to two of the major fireworks manufacturing groups, which are competitors to the assessee. There being no other manufacturer and in order to get good quality raw material and at the required time so as to have smooth supplies, the assessee decided to promote the company to manufacture aluminium powder to meet its requirement. Thus out of the sheer business necessity, the assessee thought to invest in the shares of the said company for the purpose of getting smooth supply of Aluminium powder and without any interruption. It is stated that the partners were instrumental in supply of Aluminium powder to meet its requirement. Having regard to the above said facts, the Commissioner of Income Tax (Appeals) came to the conclusion that finance of the money was made by the assessee not for earning the dividend but for getting smooth and uninterrupted supply of Aluminium powder. Thus, the Commissioner of Income Tax (Appeals) accepted the case of the assessee that the investment of a sum of Rs.1.50 crores in the shares of the sister concern, which was drawn from the current account of the assessee's Bank account was for the purpose of business. Thus, the Commissioner of Income Tax (Appeals) agreed with the assessee and allowed deduction. 4. Aggrieved by the order of the Commissioner of Income Tax (Appeals), the Revenue filed appeal before the Income Tax Appellate Tribunal, which, once again confirmed the order of the Commissioner of Income Tax (Appeals). 5. Learned Standing Counsel appearing for the appellant/Revenue placed reliance on the decision in the case of K.Somasundaram and Brothers Vs. Commissioner of Income Tax reported in (1999) 238 ITR 0939, wherein, this Court pointed out that Section 36(1)(iii) of the Income Tax Act, 1961 "the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession". The amount borrowed should not only be invested in the business but the amount borrowed should continue to remain in the business. The amount borrowed should not only be invested in the business but the amount borrowed should continue to remain in the business. However, the provision does not recognise the case where the assessee burdens its business with interest even while taking the amount initially borrowed for the business, but, subsequently, diverted to others in the form of giving free loans to relatives of the partners. In the context of facts, this Court held that the assessee had invested the borrowed fund in the execution of the contracts and the profit earned therein is used for lending interest free loans to the relatives of the partners and hence it was clearly not a business purpose. In the circumstances, this Court held that the assessee clearly diverted the funds which had been borrowed. On these facts, the assessee's claim was rejected by this Court. 6. The assessee does not deny the above proposition. However, it is submitted by the learned counsel for the assessee that the amount borrowed had been used for the purpose of investment in share of the sister concern. Pursuant to the decision taken to meet the business necessity of getting uninterrupted supply of raw material for the manufacture of fire works. Having regard to the factual findings herein, the judgment cited by the learned Standing counsel for the Income Tax in fact supports the case of the assessee. 7. Learned counsel for the assessee/respondent herein brought to our attention to the decision of the Apex Court in the case of S.A.Builders Ltd Vs. Commissioner of Income Tax reported in289 ITR 24 (P&H). The Apex Court pointed out that in the matter of finding out nexus between the expenditure and the purpose of the business, the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize its profit. The Apex Court pointed out that the income tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. No businessman can be compelled to maximize its profit. The Apex Court pointed out that the income tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The Apex Court pointed out that we have to see the transfer of the borrowed funds to a sister concern from the point of view of commercial expediency and not from the point of view whether the amount was advanced for earning profits. The Apex Court pointed out that in order to claim a deduction on the payment of interest on money, the assessee must show that the money is expended out of necessity and of commercial expediency and to indirectly facilitate the carrying on of the business. 8. In the background of the above decision on the findings of the Tribunal, we have no hesitation in confirming the order of the Income Tax Appellate Tribunal holding that the assessee was entitled to the deduction of interest attributable to borrowed funds advanced to the sister concern as by way of share application money. Accordingly, we reject the Revenue Appeal. The questions of law are answered against the Revenue. No costs.