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2016 (7) TMI 1091 - PUNJAB & HARYANA HIGH COURT

2016 (7) TMI 1091 - PUNJAB & HARYANA HIGH COURT - [2017] 391 ITR 119 - Disallowance 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 .....

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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 mer .....

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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 - I.T.A. No. 153 of 2016 (O&M) - Dated:- 21-7-2016 - S. J. Vazifdar, ACJ And Deepak Sibal, JJ. For the Appellants : Mr. M.R. Sharma, Advocate For the Respondents : Ms. Urvashi Dhugga, Advocate ORDER S. J. Vazifdar, Acting chief Justice This is an appeal against the order of the Income Tax Appellate Tribunal relating to the Assessmen .....

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al 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 .....

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made in the properties. The disallowance of ₹ 56,51,346/- included interest in the sum of ₹ 28,70,608/- which has been disallowed in view of the provisions of Section 40a(ia) which has not been challenged before us. The question of law before us, therefore, pertains only to the balance amount of ₹ 27,80,738/- which was disallowed in view of the proviso to Section 36(1)(iii). The CIT (Appeals) rejected the appellants contention that the issue had been settled against the departm .....

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of ITA No.228 of 2012 cannot, therefore, preclude the department from raising the contentions in this appeal. The 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 .....

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ection 36(1)(iii) was introduced by the Finance Act, 2003, with effect from 01.04.2004. 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. The section prior to its amendment by the Finance Act, 2015 with effect from 01.04.2016 falls for consideration as this appeal pertains to the Assessment Year 2009-10. It reads as follows:- 36. (1) The deductions provided fo .....

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t or not); for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction. 6. We have assumed the appellants case on facts to be well-founded. We would further assume that the interest was paid by the appellants in respect of the capital borrowed for the purpose of their business despite the fact that the appellants in turn advanced the amounts to their partners withou .....

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eal which pertains to the Assessment Year 2009- 10. In our view, the deduction was liable to be disallowed in view of the proviso to Section 36(1)(iii) for the assets that were purchased by the partners were not put to use at least during the assessment year in question. The appellants have failed to establish that the properties purchased by their partners were put to use during the relevant period. 8. Mr. M.R. Sharma, the learned counsel appearing on behalf of the appellants, however, contende .....

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se cannot be allowed as a deduction. The proviso relates, therefore, to capital borrowed for acquisition of an asset and not merely in respect of the capital borrowed for the purchase of an asset. The word acquisition is of wider amplitude than the word purchase . A purchase is but one of the modes of acquisition. A property can be acquired even otherwise, such as, for instance, by way of lease or license. Black s Law Dictionary (Ninth Edition) defines acquisition as follows:- acquisition, n. (1 .....

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