TMI Blog2003 (9) TMI 287X X X X Extracts X X X X X X X X Extracts X X X X ..... lf of the assessee, disallowed interest expenditure of Rs. 3,14,928 on the ground that such interest expenditure has not been incurred for the business purpose by the assessee-company and, therefore, the same is not allowable under s. 36(1)(iii) of the IT Act, 1961. The AO also placed reliance on the judgment of the Hon'ble Gujarat High Court in the case of Sarabhai Sons (P) Ltd. vs. CIT (1993) 110 CTR (Guj) 305 : (1993) 201 ITR 464 (Guj). 3. The learned CIT(A) passed the elaborate order and deleted the said disallowance. He also examined the applicability or ratio of all the judgments referred to in the assessment order. The learned CIT(A) has carefully considered the principles of law laid down by the Hon'ble Gujarat High Court in the case of Sarabhai Sons (P) Ltd. in paras 19 to 25 of the order passed by him. It would be imperative to reproduced paras 19 to 25 of the order passed by the learned CIT(A): "19. The assessment order seeks to derive support from the Hon'ble Gujarat High Court decision in the case of Sarabhai Sons vs. CIT (1993) 110 CTR (Guj) 305 : (1993) 201 ITR 464 (Guj). It is submitted that that decision is just not applicable to the facts of this case. The f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction under s. 57(iii). In the cited decision the acquisition of shares attempted was for the clear purpose and object of getting 100 per cent control over another company viz., SUML. This factor of intention of obtaining full control really clinched the issue in that case against the assessee as is obvious from the concluding part of that decision on pp. 471-G to 472D of the Report (201 ITR). The following extracts from that decision would bear it out from p. 472A as follows: "The shares were purchased by the assessee with a clear purpose or object of getting 100 per cent control over SOML. If the purpose was to earn income only, or even if that was the dominant purpose, it would not have sold the shares again to KPPL as, by the time, it had already acquired more than 90 per cent shares, and that would have satisfied its object of earning more income by possessing more shares. The reason why the assessee sold the shares was that it was not able to get 100 per cent control by purchasing all the remaining shares. Thus, from the nature of the transactions, it becomes apparent that the expenditure which was incurred by the assessee was not for the purpose of earning income, but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eriod. On consideration of these arguments I hold that the interest liability with reference to the borrowings made from Amosha Holidings (P) Ltd., is admissible as business expenditure under s. 36(1)(iii). Though the dividend income is taxable as income form other sources on account of specific provisions of the Act, the interest liability with reference to the investments made which is for the purpose of business has to be held as admissible under s. 36(1)(iii). The disallowance made by AO is, therefore, deleted. In view of this findings, I do not go into the aspects of the admissibility of the said interest under s. 57(iii) of the Act, although the authorised representative has argued on the basis of the Supreme Court judgment in the case of Rajendraprasad Moody." 4. The learned Departmental Representative relied upon the elaborate reasons given in the assessment order and also relied upon the judgment of the Hon'ble Gujarat High Court in the case of Sarabhai Sons (P) Ltd. 5. Shri S.N. Soparkar, the learned counsel appearing for the assessee, contended that the judgment of the Hon'ble Gujarat High Court in the case of Sarabhai Sons (P) Ltd. is clearly distinguishable in vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the aforesaid judgment of the Hon'ble Bombay High Court is reproduced below "In the accounting year ending 30th Nov., 1948, the assessee-company purchased shares to the tune of Rs. 524 lakhs and for this purpose took loans to the extent of Rs. 492 lakhs. During the accounting years relevant to the asst. yrs. 1949-50 and 1950-51 the assessee paid the sums of Rs.1,69,085 and Rs. 2,04,333 as interest on capital borrowed for the purchase of the shares, but there was no income at all from those shares. The assessee claimed to set off these payments of interest against its other income in those years. The Tribunal held that the investment in the shares in question was not made with a view to trading in them and that the purchase of those shares was to serve one purpose, viz., the convenience of two persons who controlled the assessee-company. The Tribunal, however, was of the view that the assessee was entitled in respect of the three subsequent years to set off the payment of interest against the dividend income: Held, (i) that the word "purpose" in the expression "expenditure incurred solely for the purpose of making or earning income, profits or gains" in s. 12(2) of the IT A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28. He has also given convincing reasons to support his conclusion that the facts in the case of Sarabhai Sons (P) Ltd. are clearly distinguishable as compared to the facts of the present case. The memorandum of association of the assessee-company clearly shows that the main object of the company was to carry on the business of acquiring, holding and selling of shares and debentures. The assessee acquired the shares of NKL out of funds borrowed from M/s AHPL, which was well covered within the main object clause of assessee's business as enumerated in the memorandum of association. These shares were also sold in the next year. The assessee received income from dividend on these shares in the year under consideration. It is true that the dividend has been assessed under the head "income from other sources" by virtue of a special provision contained in the IT Act but such an income would still form part of income from the business carried on by the assessee. It may be relevant here to reproduce the extract from the headnote of the judgment of the Hon'ble Supreme Court in the case of CIT vs. Cocanada Radhaswami Bank Ltd. "The scheme of the IT Act is that income-tax is one tax. Sec. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment of the Bombay High Court has been approved by the Hon'ble Supreme Court as already stated hereinbefore. The view taken by the CIT(A) is fully fortified by the aforesaid judgment of the Hon'ble Bombay High Court in the case of Ormerods (India) (P) Ltd. 6.3 In view of the aforesaid facts and discussion and in view of the elaborate reasons given in the order of the CIT(A), I am of the considered opinion that the view taken by the CIT(A) is perfectly valid and justified. I, therefore, do not find any justification to interfere with the view taken by him. The Revenue's appeal, in my view, has no merit. 7. The assessee has raised the following grounds in its cross-objection: "In law and in the facts as well as circumstances of the respondent's case, the learned CIT(A) has grossly erred in not adjudicating upon the claim of the respondent that deduction of interest of Rs. 3,14,928 is admissible under s. 57(iii) of the IT Act, when he ought to have adjudicated upon the same and allowed. This Hon'ble Tribunal may, in case the ground or grounds raised in the appeal filed by the Department before the Tribunal is/are allowed, be pleased to hold that the deduction of intere ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
