TMI Blog2016 (7) TMI 1091X X X X Extracts X X X X X X X X Extracts X X X X ..... ees 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the disallowance of interest amounting to ₹ 28,70,608/- u/s 36(1)(iii) of the Income Tax Act which is the actual expenditure incurred by the appellant but neither allowed as a deduction u/s 36(1)(iii) as business expenditure nor treated as capital expenditure? The appeal is admitted on the above substantial question of law. 2. The appellants - a partnership firm sought a deduction under Section 36(1)(iii) of the Income Tax Act, 1961, in respect of the interest paid by them. The appellants contended that they had raised loans at interest and had, in turn, advanced interest free loans to their partners to enable them to purchase properties in their names. It was contended before us that these properties were purchased by the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal, by the impugned order, confirmed the assessment order and the order of the CIT (Appeals). 4. To reiterate, the appellants case is this. The appellants had borrowed funds from institutions and banks in order to advance the same to their partners. The appellants paid interest to the bank and the financial institutions in respect of the funds borrowed. The appellants did not charge their partners interest in respect of the loans advanced to their partners. The partners utilized the loan for the purchase of commercial assets in order to make the same available to the appellants in respect of the appellants business. The appellants claimed a deduction in respect of the interest under Section 36(1)(iii). 5. We will assume the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the capital borrowed for the purpose of their business despite the fact that the appellants in turn advanced the amounts to their partners without charging interest, for the arrangement was to enable the partners to purchase the properties and make the same available for the appellants business. We will, therefore, assume that the appellants have also established commercial expediency in respect of this business arrangement by the acquisition of the property. The matter, however, does not end there. 7. The proviso to Section 36(1)(iii) was introduced by the Finance Act, 2003, with effect from 01.04.2004 and, therefore, applies to the appeal which pertains to the Assessment Year 2009- 10. In our view, the deduction was liable to be disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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