TMI Blog2022 (5) TMI 1028X X X X Extracts X X X X X X X X Extracts X X X X ..... , Pune, dated 15.12.2016 for the Assessment Year 2011-12.The Assessee raised the following grounds of appeal: 1. The learned CIT(A)-1, Pune erred in law and on facts in sustaining the addition u/s.36(1)(iii) of the ITA, 1961 of Rs.69,51,455/- made by learned DCIT, Circle-1(1), Pune(hereinafter referred to as the learned AO). 2. The learned CIT(A)-1, and the learned AO erred in law and on facts in not appreciating that, share purchase transaction for which loan was availed was a business transaction i.e. after buying shares, Bitwise Inc., USA, became 100% subsidiary of the appellant company. 3. The learned CIT(A)-1 and the learned AO further erred in law and on facts in not appreciating that appellant company benefitted from share purchase transaction in terms of direct control over Bitwise Inc., USA and assurance as to getting business in future years. 4. The learned CIT(A)-1 and the learned AO erred in law and on facts in holding that for qualification of interest expense u/s 36(1)(iii), appellant company ought to have engaged in the business of acquiring controlling interest in other companies and not otherwise. 5. The learned CIT(A)-1 and the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 38 ITR 777 1 (Bom.) and of Gujarat High Court in the case of Sarabhai Sons (P.) Ltd. v. CIT [1993] 201 ITR 464 in which it has been held that interest on loan taken for purchasing shares for acquiring controlling interest in the company cannot be held to be expenditure incurred wholly and exclusively for earning income from dividend and deduction under section 57(iii) is not allowable. Though, the judgment has been rendered in context of section 57, the basic premise of case is same. In this case interest on loan taken for purchasing shares for acquiring controlling interest in the company cannot be held to be expenditure incurred wholly and exclusively for business. In the case of CIT vs Phil Corporation Ltd. (supra) it was never contended that investment in shares is not a business activity of the company. Hence, facts of both cases are not similar, as in this case it is clearly established that investment in shares is not a part of business activity of the assessee company. Hence interest of Rs.69,51,455/- is disallowed u/s.36(1)(iii) of the IT Act, 1961 and added back to the total income of the assessee company,. 3. Aggrieved by the order of the Assessing Officer, the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -12 c) Commercial Value / Conso reporting benefits - New arrangement offers more strength to commence activity at other locations. Appellant company has large asset base in India. To expand the same, appellant company requires support of bank loan. New arrangement helps in getting bank finance for Indian Activity, as earnings of subsidiary gets considered in granting loans. d) Employee retention - In software activity, retention of key employees is a crucial aspect. To create confidence and peace in the minds of senior employees, holding - subsidiary relationship grants far more comfort in the minds of employees. Lien on employment could be easily retained in case, employees of respective companies are to be transferred to other jurisdictions. Bitwise group is able to retain more than 800 employee head count as on date. Employees increased comfort of a consolidated entity was another factor of commercial expediency. e) Employee morale - ESQP's and values - The key employees can be offered shares of the Indian company from the perspective of granting some partial ownership. For the record, appellant company has offered equity shares of Bitwise India to some of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under: (f) We note that it is undisputed that the business of the Respondent-assessee is of running of BPO and Call Centres. Nor is it disputed that M/s.Minacs Canada is also in the business of Information Technology enabled Services i.e. BPO and Call Centre. It was the business decision of the Respondent to enhance/expand its activities and presence in the world market for that purpose had acquired controlling interest in the business of M/s.Minacs Canada which was in the same line of business as the Appellant. To make the above investment for the purpose of its business the loan was taken. Therefore the interest expenditure incurred on loans taken for investment in acquiring controlled interest in a Company which was in the same line of business as that of the Respondent would be allowable expenditure under section 36(1)(iii) of the Act. In Srishti Securities (P.) Ltd, (supra) the interest expenditure under section 36(1)(iii) of the Act had been disallowed by the Assessing Officer on the ground that the primary object of acquiring shares was only to acquire controlling interest in the Company. Thus not for purposes of business. This the Tribunal negatived. Further in Appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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