TMI Blog2010 (6) TMI 612X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee would be entitled to deduction of interest under section 36(1)(iii) of the Act on the borrowed funds utilised for the acquisition of shares only if shares are held as stock in-trade which arises only if the assessee is engaged in trading in shares. So far as acquisition of shares is in the form of investment and the only benefit the assessee derived is dividend income which is not assessable under the Act, the disallowance under section 14A is squarely attracted and the Assessing Officer, in our view, rightly disallowed the claim, dividend income received by the assessee during the previous year was a meagre sum of Rs. 3 lakhs. This only shows that the business carried on by the leasing company was not very substantial to justify ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng for the respondent-assessee. 2. The assessee was running a business as proprietrix engaged in trading of goods. During the previous year relevant for the assessment year 2001-02 (wrongly written in the original order, annexure C, as 2002-03, which was corrected by the Tribunal through annexure D order) the assessee paid an interest of Rs. 17,44,310 towards interest at 24 per cent. per annum on funds borrowed for purchase of shares in a company by name Homefit Leasing Ltd. The assessee's case was that the company in which the assessee made investments through acquisition of shares was engaged in leasing of household articles and the assessee as proprietrix of the business sold such articles to the said leasing company. The said compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed confirming the assessment, against which the assessee preferred a second appeal before the Tribunal. The Tribunal by relying on decision of the Supreme Court in S. A. Builders Ltd. v. CIT (Appeals) reported in [2007] 288 ITR 1 (SC) and the decision of the Calcutta High Court in CIT v. Rajeeva Lochan Kanoria reported in [1994] 208 ITR 616 (Cal), substantially allowed the claim, but made a disallowance of Rs. 2 lakhs being the interest stated to be attributable to the dividend income of Rs. 3 lakhs earned by the assessee from the leasing company during the previous year. Against this order, the Revenue has preferred this appeal. 3. Senior counsel appearing for the Revenue contended that the decision of the Calcutta High Court has no ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the interest paid by the assessee during the previous year for the funds borrowed for acquisition of shares in the company was at the rate of 24 per cent. per annum and the total interest paid in the accounting year alone is as much as Rs. 17,44,310. It is on record that the assessee had received only a dividend income of Rs. 3 lakhs and no other benefit is derived from the company for the business carried on by it. The disallowance prohibited under section 14A is expenditure incurred for earning any income which does not constitute total income of the assessee. In other words, any expenditure incurred for earning any income which is not taxable under the Act, is not an allowable expenditure. Dividend income is exempt under section 10(3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt decision which pertains to the period prior to introduction of section 14A, has no application. The decision of the Supreme Court also does not apply because in this case apart from investment in shares of the company, there is nothing to indicate that the assessee's business was fully linked with the business of the leasing company or that the assessee's business is solely dependent on the business of the leasing company. In fact, the whole transaction was a total fiasco inasmuch as, as against Rs. 17,44,310 paid towards interest on borrowed funds serviced at the rate of interest of 24 per cent. per annum, the dividend income received by the assessee during the previous year was a meagre sum of Rs. 3 lakhs. This only shows that the bus ..... X X X X Extracts X X X X X X X X Extracts X X X X
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