TMI Blog2009 (10) TMI 932X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) erred in not considering such amount as eligible for deduction under section 37 of the Act. 2. Without prejudice to ground No.1 and in the alternative, the CIT (A) erred in not allowing the interest paid by the appellant of ₹ 125,34,83,989/-as expenditure for the purpose of earning dividend income under section 57(iii) of the Act. 3. Without prejudice to the contention, that the appellant be allowed deduction of interest under section 36(1) (iii)/ section 37 or alternatively u/s. 57 (iii) of the Act, the appellant submits that it be permitted to capitalize the interest paid by it and enhance the cost of acquisition of the 45% of the share capital of Videsh Sanchar Nigam Ltd.' 2. The facts necessary for the disposal of the appeal are incorporated succinctly by the Assessing Officer as well as the CIT (A) and hence it is not necessary to repeat the facts in great detail. The assessee-company is a subsidiary of Tata Sons Limited. It was engaged in the business of investment and finance. In respect of the an income of ₹ 7.38 crores whereas the Assessing Officer completed the assessment on a total income of ₹ 132.73 crores by disallowing claim of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertible debentures, on a private placement basis. It has secured further loan by issue of debentures and by receiving unsecured loan from Tata sons. On the above mentioned borrowings the assessee paid an interest of ₹ 125.34 crores. The Assessing Officer observed that the assessee obtained loans only to acquire 45% of controlling stake in VSNL but it had never received income/commission or any other remuneration for managing the telecom business of VSNL and thus, the claim of assessee company that it's acquisition of controlling stake was with the object of managing the telecommunication business of VSNL is contrary to facts. Thereafter he has referred to various decisions relied upon by the representatives appearing on behalf of the assessee to finally conclude as follows: i. The intention in purchasing the shares was not to acquire them as part of the stock in trade of its business in shares. The assessee-company has been used as special purpose vehicle for acquiring the controlling stake in VSNL and thus the interest payment on the borrowings is not for the purpose of business of the assessee-company. Therefore, the same is not allowable under section 36 (1) (iii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 36 (1) (iii) of the Act and hence on behalf of Panatone Finvest Ltd., learned A.R. submitted that the issue concerning claim of deduction under section 36 (1) (iii) of the Act is not pressed. Thus the learned counsel pressed for consideration of claim under section 57 (iii) of the Act. Therefore, it is not necessary for us to consider the claim of the assessee under section 36 (1) (iii) of the Act. Thus we uphold the view of the learned CIT (A) as regards disallowance of claim made under section 36(1) (iii) of the Act. 6. The learned counsel appearing on behalf of the assessee adverted our attention to para 6.3 of the Order passed by the learned CIT (A) to submit that it is not in dispute that the shares of VSNL were purchased with a view to obtain controlling interest of the said company. He further submitted that as per the agreement with the Government of India the assessee-company was precluded from selling or otherwise disposing of the equity shares for a period of 3 years and Article 5 of the share purchase agreement depicts the intention of the company i.e., acquisition of the shares of VSNL were for strategic investment purpose only and solely for its own account an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r hand the learned Departmental Representative submitted that the facts were not properly highlighted by the learned counsel while slating that the Shares were purchased for acquiring controlling interest in VSNL. Adverting our attention to page 2 of the Order passed by the learned CIT (A), the learned Departmental Representative submitted that acquisition of 45% controlling stoke in VSNL was not with the abject of managing the telecommunication business of the VSNL on its own but only with a purpose of having control of VSNL within the Tata group. In other words, the purpose is only for investment and the dominant purpose of the company is not to acquire controlling interest but only to have control of VSNL so that VSNL is within the control of Tata group. He further submitted that neither the Assessing Officer nor the CIT (A) expressed in dear terms that the shares of VSNL were purchased with a concurrent motive. He further submitted that the case law relied upon by the assessee are distinguishable on facts. In this regard, he has adverted our attention to the decision of the Hon'ble Bombay High Court in the case of Ormerods (India) Private Ltd. vs. CIT, Bombay City (1959) 36 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of deduction under section 57 (iii) of the Act, the learned counsel heavily relied upon the decision of the Hon'ble Bombay High Court in the case of Ormerods (India) Pvt. Ltd. (supra) and also relied upon the decision of the ITAT, Calcutta Bench in the case Off Shore Ltd. vs. DCIT (supra) as well as the decision of the Apex Court in the case of Seth R. Dalmia vs. CIT (supra) to submit that, irrespective of the receipt of dividend, expenditure incurred on purchase of shares can be allowed as deduction. In our considered opinion, the case law relied upon by the learned counsel are distinguishable on facts. In the case of the assessee-company controlling stake of VSNL was acquired only to serve the holding company's interest by acting as Special Purpose Vehicle to bid for the acquisition of shares of VSNL and not with a dominant object of earning income, either directly or indirectly. 11. The Assessing Officer as well as the CIT (A) discussed the facts elaborately to highlight that the shares were purchased only as an investment and it was not purchased either to have controlling interest in the equity share capital of VSNL or to earn dividend income. The shares were not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in respect of the three subsequent years. The appeal before the Tribunal, as we have already mentioned, related to the five assessment years. In respect of the last three assessment years, no reference has been sought by the Department. In the two assessment years to which this reference relates, there was admittedly no dividend income realized by the assessee company from the purchase of those shares. The only inference that is possible is that according to the Deportment the effect of Section 24 read with section 12 (2) is that though income from dividend in a case of the nature before us would be taxed under the head of other sources, interest was paid on any loan incurred for the purpose of making the investment such interest would not be token info consideration. of course, we are not concerned with any equitable consideration or any consideration of fairness while interpreting the provisions of the Act and if the language of section 12 (2) compelled us to take the view urged on behalf of the Department, we would certainly take that view though not without some reluctance. 13. The following observations of the Apex Court in the case of Seth R. Dalmia vs. CIT (1977) 110 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
