2006 (12) TMI 557 - HC - Income Tax

Tribunal allows interest as business expenditure under sec 36(1)(iii)

COMMISSIONER OF INCOME TAX Versus ASHINI LEASE FINANCE PVT. LTD.

The Tribunal upheld the order of the CIT (Appeal) allowing interest as a business expenditure under section 36(1)(iii) in a case concerning the ... - Issues involved:The issue in this case revolves around the disallowance of interest by the Assessing Officer u/s 36(1)(iii) on the grounds that the purchase of shares was mainly for acquiring controlling rights in another company.Judgment Summary:Issue 1: Disallowance of interest u/s 36(1)(iii)The Tribunal considered the case in light of similar instances and found that the main object of the company was acquiring, holding, and selling shares and debentures, which aligned with the Memorandum of Association. The Tribunal referred to legal precedents, such as the judgment of the Hon'ble Supreme Court in CIT vs. Cocanda Radhaswami Bank Ltd., to support the position that income from dividends, although assessed separately, still forms part of the business income. Additionally, the Tribunal cited the judgment of the Hon'ble Gujarat High Court in CIT vs. Cotton Fabrics Ltd. to emphasize that interest paid for carrying on business is deductible in its entirety under S.36(1)(iii). The Tribunal also referenced the case of Ormerods (India) Pvt. Ltd. Vs. CIT, where the Bombay High Court allowed interest expenditure on capital borrowed for share purchase as a deduction under the IT Act. Based on these considerations, the Tribunal upheld the order of the CIT(A) allowing interest as a business expenditure.Issue 2: Application of legal precedentsThe Tribunal compared the facts of the present case with previous judgments and found similarities with cases like Ataku Holdings Pvt. Ltd. and Aashini Lease Finance Pvt. Ltd. The Tribunal distinguished the case of Sarabhai Sons Pvt. Ltd. as it involved acquiring 100% control, unlike the minor percentage of shares acquired by the assessee. By applying the judgment of the Hon'ble Supreme Court in Seth R. Dalmia Vs. CIT and the decision of the Bombay High Court in Ormerods (India) Pvt. Ltd., the Tribunal concluded that the assessee's case was covered in favor of the assessee. Therefore, the Tribunal upheld the order of the CIT(A) allowing interest as a business expenditure, dismissing the Revenue's appeal.Conclusion:Both the CIT (Appeal) and the Tribunal found that the borrowings were for the purpose of business, which was a factual determination. As there was no perversity in the order and no grounds for admission of the appeal, the appeal was dismissed at the admission stage.This summary provides a detailed overview of the judgment, highlighting the key legal arguments and decisions made by the Tribunal in relation to the issues raised in the case.