TaxTMI 
TaxTMI 
2006 (2) TMI 578
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....679.30 lakhs. Out of this, the investment of the assessee-company in shares amounted to Rs. 656.42 lakhs and investment in Government Securities amounted to Rs. 7.32 lakhs; total Rs. 663.74 lakhs. On the borrowed funds, the assessee-company has paid interest of Rs. 44.21 lakhs and claimed the same as an expense against income of Rs. 2.52 lakhs on account of interest on Government Securities, Rs. 1.26 lakhs on account of Interest on Income Tax Refund and Rs. 16.44 lakhs as Dividend. In the profit & loss account, there is neither any purchase/sale of shares, nor any opening/closing stock of shares. It was held by the Assessing Officer that the assessee has borrowed funds from group companies and invested the same in acquiring shares of group companies, there is no business activity being carried on by the assessee and hence the interest is not allowable under section 36(1)(iii) or under section 37 of Income-tax Act. It is also held by him that since the dividend income is exempt, the interest is not allowable under section 57 also. For these reasons, the Assessing Officer disallowed the interest expenses of Rs. 44.19 lakhs. On appeal, Learned CIT(A) upheld the disallowance made by th....
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.... as investment and stocks were allowed to be carried forward as business loss. It was submitted that the department has accepted this order of Learned CIT(A) copy of which is available on pages 105 to 107 of the paper book. 4. It was also submitted that as per the order dated 23-8-2001 of Hon'ble Jurisdictional High Court, the assessee-company has merged with Hamilton & Co. Ltd. with effect from 1-4-1999 and after merger, in the Balance Sheet of Hamilton & Co. Ltd. also, stock-in-trade of the assessee-company is shown as its own stock and on sale of the same in assessment years 2004-05 and 2005-06, the income is offered to tax as business income and our attention was drawn to the profit and loss account and computation of the Hamilton & Co. Ltd. as appearing on pages 52, 58, 64, 84, 90 and 96 and also to pages 108 to 112 of Paper Book-I. It was contended that interest should be allowed to the extent the borrowed funds are used for acquiring stock-in-trade. 5. As against this, Learned DR the revenue strongly supported the order of Learned CIT(A). Reliance was placed on the Tribunal order rendered in the case of Dy. CIT v. S.G. Investments & Industries Ltd. [2004] 89 ITD 44 (Kol.),....
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....were not brought on record before the Assessing Officer, this matter has to go back to the file of the Assessing Officer for quantifying the amount of allowable interest as per above discussion. While holding so, we find that the judgment of Hon'ble Jurisdictional High Court rendered in the case of Amritaben R. Shah (supra) is not applicable in the present case because the facts are different and nothing is brought on record to show that the shares were acquired by the assessee for acquiring controlling interest in these companies. Regarding the interest on borrowed funds used for acquiring shares as investment, it is now settled position that income from investment i.e., dividend is exempt and hence as per the provisions of section 14A, no interest expenses on this account is allowable. The judgment of Hon'ble Jurisdictional High Court rendered in the case of Tata Chemicals Ltd. (supra) does not help the case of the assessee because in this case, it is held by Hon'ble High Court that a positive finding is given by the Tribunal that investment in tax-free bonds has been in the course of business and since it is a finding of fact, no substantial question of law arises. The Tribunal ....
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....Products Ltd. [1973] 88 ITR 192. 12. We have considered the rival submissions and have gone through the judgments cited by both sides. We find that this contention was never raised by the assessee before the Learned CIT(A) for allowing of adding the interest expenses in the cost of investment. On merit also, we find no substance in this contention of the assessee in the facts of this case because in the present case, the assessee is earning dividend income from investment of shares and it is settled position that such interest is allowable under the head 'Income from other sources' and in this year, the same is not so allowable because of section 14A as per which, no expenses is allowable, which are incurred for earning an exempt income and since dividend has been made exempt under section 10(33) from 1-6-1997 being the date from which section 115-O was inserted by the Finance Act, 1997. 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. It will result into allowing....
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....ent also does not help the case of the assessee because the facts are different. In this case, Their Lordships have reproduced the head note from the judgment of Hon'ble Apex Court rendered in the case of Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167 . As per these head note, the interest incurred before commencement of production can be capitalized. In this case also, a plot was purchased and interest paid was neither claimed nor allowed as expenses. Under these facts, it was held that interest was to add to the cost of plots but in the present case, the asset is investment in shares from which, dividend-income is generated and deduction of such interest is held to be allowable under the head "Income from other sources" irrespective of actual dividend amount and hence the facts of the present case are different. 13. The judgment of Hon'ble Apex Court rendered in the case of Saharanpur Electric Supply Co. Ltd. (supra) is not applicable in the present case because in this case, the issue involved was that the figure of actual cost of asset can be altered in view of subsequent factual or legal information. In the present case, there is no such issue of altering the cost in the li....