TMI Blog2017 (11) TMI 1946X X X X Extracts X X X X X X X X Extracts X X X X ..... ull spirits, and it is not permissible to the AO to take a different view, or to sit in judgment over the Order of Tribunal by interpreting the same in the manner he wanted. The Tribunal on earlier occasion in its order, has given direction to ld. Assessing Officer to allow the expenditure u/s.36(1)(iii) of the Act, if the investment was made in subsidiary company for the purpose of acquiring controlling interest and acquisition of such controlling interest was of the business of the assessee and if it resulted in promote the business of the assessee as well as helpful to the assessee for having management control over said such subsidiary company, then the duty of the AO is to grant deduction u/s.36(1)(iii) of the Act, if it is fulfilled the condition laid down by the Tribunal. If the money was borrowed for the purpose of purchase of shares of subsidiary company, which is for the purpose of acquiring or maintaining controlling interest and acquisition/maintaining of such controlling interest was of the business of the assessee and if it is resulted in promotion of the business of assessee company as well as helpful to the assessee for having management control over such sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the file of ld. Assessing Officer for fresh consideration by giving findings in para Nos. 29 to 31.08 as follows:- 29. We have heard both the parties and perused the material on record. The question involved in this case is only about the allowability of the interest on borrowed funds and hence we are dealing only with that question. In this connection, we refer to s. 36(1)(iii) of the IT Act, 1961 which states that the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession has to be allowed as a deduction in computing the income-tax under s. 28 of the Act. 29.1 In our considered opinion the expression for the purpose of business occurring under the provision is wider in scope than the expression for the purpose of earning income, profits or gains . 29.2 In our opinion, the lower authorities have approached the matter from an erroneous angle. In the present case, the assessee borrowed the fund from the bank and lent it to its sister-concern, which is a wholly owned subsidiary, M/s. Aban Offshore Pte. Ltd. as interest-free loan later converted into share capital. The test, in our opinion, in such a case is really whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Birla Cotton Spinning Weaving Mills Ltd. (1971) 82 ITR 166 (SC), etc. 29.9 The lower authorities should have examined the purpose for which the assessee advanced the money to its sister-concern, and what the sister-concern did with this money, in order to decide whether it was for commercial expediency, but that has not been done. 29.10 It is true that the borrowed amount in question was not utilized by the assessee in its own business, but had been advanced as interest-free loan to its sister-concern and later converted into share capital. However, in our opinion, that fact is not really relevant. What is relevant is whether the assessee advanced such amount to its sister-concern as a measure of commercial expediency. 30. The Delhi High Court in CIT vs. Dalmia Cement (Bharat) Ltd. 254 ITR 377 (Del) is applicable to the facts of the present case, wherein it was held that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of the board of directors and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the cost of the investment so as to increase the value of the capital asset. 31.3 In the present case, there is no dispute that the assessee has borrowed funds for the purpose of investment in shares and thereafter the assessee has incurred interest on it. In our opinion, the interest is to be considered as part of the cost of investment till date of acquisition and interest paid by the assessee commencing from the date of acquisition of shares till the date of sale would not form part of the cost of acquisition. 31.4 Further, it is a settled legal position that income of an assessee has to be computed under various heads specified under section 14 of the Act. Therefore, the deductions are to be allowed in computing the income under various heads only to the extent it is provided by the Legislature under that very heads. The computation of capital gain is provided in section 48 of the Act. According to this section, the only deductions which are allowable are - (1) the cost of acquisition of the asset, (2) the cost of any improvement thereto and (3) expenditure incurred wholly and exclusively in connection with the transfer of the asset. The cost of acquisition, in our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act, which can never be the intention of the Legislature. As already stated, the double deduction is prohibited as laid down by the Supreme Court in the case of Escorts Ltd. (supra). The entire scheme of the Act, therefore, reveals that interest component after the date of acquisition and till the date of sale cannot be treated as the cost of acquisition. It is only allowable as a revenue deduction on year to year basis against the income generated from such asset or likely to be generated to the extent provided by the Legislature under different heads. 31.6 The above view is also fortified by the decision of the coordinate Bench of the Tribunal in the case of Macintosh Finance Estates Ltd. vs. ACIT(12 SOT 324), wherein it has been held once we find that interest expenses is an allowable expenditure under the head Income from other sources , it cannot be allowed to be added to the cost of investment only because in this year no deduction is allowable because the dividend income has been made exempt . The following observations of Supreme Court in the case of Saharanpur Electric Supply Co. Ltd vs. CIT (1992) 194 ITR 294 (SC) were relied on by the Court:- In case m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for fresh consideration after necessary examination and after allowing opportunity of hearing to the assessee. In the result, ITA No.585/Mds/2016 is partly allowed for statistical purpose. 2.1 For the assessment year 2011-12, the Tribunal directed the ld. Assessing Officer in para No.49 to follow the findings of the Tribunal for assessment year 2010-11 as the issue was similar in nature. 3. Before us, ld.A.R submitted that the following findings in para No.31.8 is not at all required, which amounts to duplication of the direction to AO which would confuse him. Accordingly, he prayed to delete the following portion:- Further if the Assessing Officer found that investment in shares of subsidiary company not for maintaining controlling interest, then the Assessing Officer should see that there cannot be any disallowance in respect of investment of assessee s own fund. This is so because the borrowed funds and own funds are admittedly mixed up in such cases, the disallowance of interest has to be made on proportionate basis and benefit has to be given to the assessee towards investment of own fund. It is also to be noted that while computing disallowance if any u/s.36(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nagement control over such subsidiary company, then such interest expenditure should be allowed u/s.36(1)(iii) of the Act. Thus, it means that the Tribunal has not rejected the claim of assessee and the AO has to read the para Nos.31 to 31.8 of the order of Tribunal in a cumulative manner and he shall not read the para No.31.8 in an isolate manner, which would give absurd result, that shall be avoided. 5.1 Further, before us, the ld.A.R made one more submission that the AO is not passing the order giving effect to the Order of Tribunal in accordance with the direction of the Tribunal. 5.2 At the outset, it may be appropriate to point out the well settled legal position that what is binding on the courts is the ratio of a decision. There is a clear distinction between on the courts is the ratio of the decision, obiter dicta and observations from the point of view of precedent value or their binding effect. It will be necessary in this case to explain this distinction. But before we do so, we may discuss the principle of binding precedent. This will take us to the question whose decision binds whom. 6. For deciding whose decision is binding on whom, it is necessary to know t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the Tribunals subject to its supervision would confirm to the law laid down by it. It is in that view of the matter that the Supreme Court in East India Commercial Co. Ltd. v. Collector of Customs (AIR 1962(SC) 1893 (at p. 1905) : We, therefore, hold that the law declared by the highest court in the State is binding on authorities or Tribunals under its superintendence, and they cannot ignore it .. 11. This position has been very aptly summed up by the Supreme Court in Mahadeolal Kanodia v. Administrator General of West Bengal(AIR 1960 SC 936) (at p.941) : Judicial decorum no less than legal propriety forms the basis of judicial procedure. If one thing is more necessary in law than any other thing, it is the quality of certainty. That quality would totally disappear if judges of co-ordinate jurisdiction in a High Court start overruling one another's decisions. If one Division Bench of a High Court is unable to distinguish a previous decision of another Division Bench, and holding the view that the earlier decision is wrong, itself gives effect to that view, the result would be utter confusion. The position would be equally bad where a judge sitting singly in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rine of precedents into a prison- house of bigotry, regardless of varying circumstances and myriad developments. Realism dictates that a judgment has to be read, subject to the facts directly presented for consideration and not affecting those matters which may lurk in the record. Whatever be the position of a subordinate court's casual observations, generalisations and subsilentio determinations must be judiciously read by courts of coordinate jurisdiction. 14. Decision on a point not necessary for the purpose of the decision or which does not fall to be determined in that decision becomes an obiter dictum. So also, opinions on questions which are not necessary for determining or resolving the actual controversy arising in the case partake of the character of obiter. Obiter observations, as said by Bhagwati J. (as his Lordship then was) in Addl. District Magistrate, Jabalpur v. Shivakant Shukla(AIR 1976 SC 1207), would undoubtedly be entitled to great weight, but an obiter cannot take the place of the ratio. Judges are not oracles. Such observations do not have any binding effect and they cannot be regarded as conclusive. As observed by the Privy Council in Baker v. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ories in relation to which it exercises jurisdiction. It does not extend beyond its territorial jurisdiction. (c) The position in regard to the binding nature of the decisions of a High Court on different Benches of the same court may be summed up as follows:- (i) A single judge of a High Court is bound by the decision of another single judge or a Division Bench of the same High Court. It would be judicial impropriety to ignore that decision. Judicial comity demands that a binding decision to which his attention had been drawn should neither be ignored nor overlooked. If he does not find himself in agreement with the same, the proper procedure is to refer the binding decision and direct the papers to be placed before the Chief Justice to enable him to constitute a larger Bench to examine the question (see Food Corporation of India v. Yadav Engineer and Contractor(AIR 1982 SC 1302). (ii) A Division Bench of a High Court should follow the decision of another Division Bench of equal strength or a Full Bench of the same High Court. If one Division Bench differs from another Division Bench of the same High Court, it should refer the case to a larger Bench. (iii) Where there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by another authority without mandate of law, it would create chaos in the administration of law and hierarchy of administration would mean nothing. Judgment of a higher forum cannot be substituted by the decisions of the lower authorities. Judicial discipline requires that there cannot be any amount of disregard to the superior authority in the hierarchy by the Assessing Officer. When once the Tribunal decides an issue in one way, the only course available to the Assessing Officer is to follow the order of the Tribunal in true spirits, and it is not permissible for the Assessing Officer to take a different view, or to sit in judgment over the order of the Tribunal by interpreting the same in the manner he wanted. 19. In the case of Winter Misra Diamond Tools Ltd. V/s.Collector of Central Excise (1996) 83 ELT 670 Tri Del, considering the role of a subordinate authority while implementing the orders of the superior appellate/judicial authorities, following the decision of the Apex Court in the case of Union of India V/s. Kamalakshi Finance Corporation Ltd. (1991) 55 ELT 433(SC), it was held as follows- 45. At the same time, the appellants are correct in pointing out that o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of acquiring controlling interest and acquisition of such controlling interest was of the business of the assessee and if it resulted in promote the business of the assessee as well as helpful to the assessee for having management control over said such subsidiary company, then the duty of the AO is to grant deduction u/s.36(1)(iii) of the Act, if it is fulfilled the condition laid down by the Tribunal. At this stage, even at the cost of repetition, it is needless to say that if the money was borrowed for the purpose of purchase of shares of subsidiary company, which is for the purpose of acquiring or maintaining controlling interest and acquisition/maintaining of such controlling interest was of the business of the assessee and if it is resulted in promotion of the business of assessee company as well as helpful to the assessee for having management control over such subsidiary company, then such interest expenditure should be allowed u/s.36(1)(iii) of the Act. If AO fails to properly understand or appreciate the direction to the Tribunal, then the assessee is at liberty to explore and pursue the remedies available under law at elsewhere, as the AO is duty bound to pa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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