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2016 (7) TMI 1091 - HC - Income TaxDisallowance of interest u/s 36(1)(iii) - property were acquired indirectly i.e. in the name of partners - diversion of loan - Held that:- Possession of rights and interest in an asset can be gained in several ways and not merely by the purchase thereof. It can be gained for instance by virtue of or under a lease, licence or on rent. If the legislature intended restricting the ambit of the proviso to capital borrowed for the purchase of an asset, it would have provided so expressly. The legislature has deliberately used a wider expression “acquisition of an asset” to ensure that assessees do not get the benefit of a deduction unless and until they put such assets to use. There is nothing in the plain language of the section or otherwise that persuades us to hold that the legislature intended excluding all modes of acquisition of an asset other than by the purchase thereof. Admittedly, the loan was taken by the appellants for the acquisition of the asset, namely, the said immovable properties. The proviso does not operate only in cases where the assessee acquires the asset directly. The mode of acquisition is irrelevant and the proviso would apply so long as the primary intention of the assessee is to acquire the asset for the purpose of its business. We do not express any opinion where the acquisition of the asset is only incidental to the transaction or arrangement such as in the case of a merger of companies under Sections 391 and 394 of the Companies Act. In the present case, the appellants/assessees allegedly acquired the assets by advancing interest-free loans to their partners to enable the partners to purchase the assets and to make the same available to them for the extension of their existing business. The assessees are in the business, inter alia, of selling footwear. They contend that they required the additional premises or showrooms to sell the same. This was, therefore, in any event, an indirect acquisition of the asset by a particular mode. The sole intention was to acquire the assets. - Decided in favour of the respondents/revenue
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