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2013 (3) TMI 217 - HC - Income TaxComputation of income - under the head "business income" OR "capital gains" - whether assessee entitled to a deduction of interest paid by it on loans under Section 36(1)(iii) - Held that:- Admittedly the Memorandum of Association of the assessee-company provided that the assessee can carry on the business of investment, financing, buying, selling, investing, transferring, disposing off and otherwise dealing in shares, stocks etc. There is also no dispute that the assessee is registered with the R.B.I. as a "non-banking financial company" allowed to carry on the acquisition of shares, stocks etc. or other marketable securities as it is also a financial institution. Therefore from these facts, it is clear that it is the intention of the assessee to do business of investment in shares and to sell them. As during the financial year 2001-02 admittedly the assessee had borrowed Rs. 51.32 crores from 3 companies and repaid it at the end of the said financial year. Again in the financial year 2002-03 it had taken the loan & out of the said loan purchase of 10,33,323 shares of another group company. The assessee sold 8,70,000 shares of the said company during the financial year 2002-03. This shows that in order to acquire the shares, the assessee has been borrowing funds from its sister concerns and repaying the outstanding loan with interest at the end of each financial year and again taking a loan at the beginning of the following financial year. This policy was being followed without a break and the borrowing of funds by the assessee had assumed the characteristic of a continuing loan. Merely because the assessee had shown the receipts on sale of part of shares as "long term capital gains", that is not conclusive and the Tribunal has rightly held that entries in the books or classification of a particular item in the annual accounts does not determine the character of income or asset. Tribunal has correctly appreciated the evidence to conclude that the business of the assessee is to invest in shares, that the borrowing was for the purpose of business and that the entire amount paid by the assessee on the loans taken by it is allowable as a deduction under Section 36(1)(iii) - no substantial question of law arises - in favour of assessee.
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