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2018 (12) TMI 1147 - HC - Income TaxInterest paid on the borrowed funds as claimed as an allowable expenditure by the assessee u/s 36(1)(iii) read with Section 57 - Tribunal ruled that the said interest payment by the assessee in acquiring control of the two companies would result in earning exempt dividend income and, therefore, the same was not allowable - Held that:- Section 37 covers expenditure of a general nature which are not classifiable under Sections 30 to 36. But, they ought not to be capital expenditure or personal expenses of the assessee. That expenditure which is wholly and exclusively laid out for the purpose of business or profession shall be allowed in computing the income chargeable. The Tribunal had to go into this question only. What the Tribunal has done is simply amazing. Now Section 14A provides that in respect of exempt income the expenditure for earning the said income shall not be allowed. Tribunal ruled that the said interest payment by the assessee in acquiring control of the two companies would result in earning exempt dividend income and, therefore, the same was not allowable. It was as if an imaginery income and expenditure of a subsequent assessment year was taken into account for calculating the income of a particular previous year. All that the Tribunal was required to ascertain was whether the interest paid on fund generated for the purpose of gaining control of the two companies would be allowed as an expenditure and not delve into the question whether the income which that investment would produce in the future would be dividend. It had to see whether any part of the income of the assessee for the assessment year was dividend income; and whether any part of the expenditure for acquiring control of the two companies were being applied to claim deduction from that income. The impugned order of the tribunal dated 11th April, 2008 is set aside.
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