TMI Blog2005 (1) TMI 315X X X X Extracts X X X X X X X X Extracts X X X X ..... equired further to prove in support of its proposition that the transaction of lending/placing as share application money by way of equity participation as part of the business expansion plan, is also a business transaction. The assessee submitted that this sum of Rs. 10 crores was invested in shares of M/s. Palkhi Investments and Trading Company Pvt. Ltd. (in short Palkhi) in joint venture. It was submitted that even if it is treated as loan, that is also a business of the assessee-company and, hence, the interest has to be allowed under section 36(1)(iii) Reliance was placed on the written submissions filed before the learned CIT(A) as per letter dated 21-5-1999 and this is available on pages 14 to 28 of the paper book and the submission regarding this issue is from Pages 17 to 21 of the paper book. Reliance was placed on the judgments, which are relied upon in this written submission and in addition to that, reliance was placed on the following judicial pronouncements:- (a) Veecumsees v. CIT [1996] 220 ITR 185(SC) (b) Dail Investment Ltd. v. Dy. CIT [2001] 73 TTJ 22 (Kol.) (Bench of the Tribunal) 4. It was submitted that during the material time, Palkhi was also in the bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emorandum and Articles of the assessee-company. It was submitted that authorised share capital of Palkhi was only Rs. 1 crore and out of the same, a sum of Rs. 99 lakhs had already been utilized. It was also contended that no evidence has been brought on record that the money was given by the assessee-company to Palkhi as share application money. 6. Reliance was placed on the written submission filed by the learned Departmental Representative of the Revenue and in particular, our attention was drawn to Page 4 of the written submission, on which, reliance was placed on the judgment of the Hon'ble Madras High Court rendered in the case of CIT v. Indian Express Newspaper (P.) Ltd. [1999] 238 ITR 70, wherein it was held that the borrowed capital must be used for the purpose of business and where the amount borrowed was not used for the purpose of business of the assessee, interest on borrowed amount is not deductible under section 36(1)(iii). Reliance was placed on the assessment order and the order of the learned CIT(A) and in particular Para No. 2.3 of his order. 7. In rejoinder, it was submitted by the learned Authorised Representative of the assessee that interest income of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uent events also, it transpires that shares were not allotted by Palkhi to the assessee-company and the sum of Rs. 10 crores was refunded by Palkhi to the assessee-company on 31-3-1996. We also find that authorised capital of Palkhi is only Rs. 1 crore and out of that, shares of Rs. 99 lakhs had already been allotted by it in the financial year 1993-94 and nothing could be brought on record regarding any steps taken by Palkhi to increase authorised capital, which is the first step required for making allotment of these shares to the assesses-company and from these facts it emerges that there was no intention to allot any share to the assessee-company by Palkhi and under these facts and circumstances of the case, it is clear that this transaction cannot be treated as utilization of this amount by the assessee-company for purchase of shares and, hence, no deduction is allowable under section 36(1)(iii) or under section 37. If the transaction is treated as a loan to Palkhi, the fact is that no interest was received by the assessee-company on this sum and hence in spite of the fact that interest income was assessed as business income, this advancing of loan without interest cannot be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferent and, therefore, this judgment also does not help the case of the assessee. The judgment in the case of Aruna Mills Ltd. also is of no help to the assessee because in the present case also, the assessee could not prove that there was a joint venture with Palkhi or that the assessee was in the business of investment or trading in shares, because the assessee has advanced this sum of Rs. 10 crores out of borrowed funds and Rs. 5.17 crores out of own funds to Palkhi and it is claimed that these sums were advanced to Palkhi as share application money but the assessee could not produce even the share application. From the Balance-sheet of the assessee-company on 31-3-1996, it is seen that apart from this sum of Rs. 5.51 crores to Palkhi there is no money given for share application to any other company and there is no purchase of shares. No evidence could be produced with regard to the contention of joint venture with Palkhi and since the existence of share business is not proved, the principles of commercial expedience applicable to a business or businessman is of no relevance in this case. 12. The judgment of the Hon'ble Madras High Court in the case of Indian Express Newspape ..... X X X X Extracts X X X X X X X X Extracts X X X X
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