TaxTMI 
TaxTMI 
TaxTMI 
2011 (8) TMI 446
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....imited. As per the arrangement between Dana Corporation, USA and Anand Group of Industries - the assessee company belongs to this group of companies - Dana Corporation. USA and Anand Group acquired shares of M/s Spicer India Limited in the ratio of 74.9% and 25.1% respectively. The assessee company invested Rs. 2.22 crores in the share capital of M/s. Spicer India Limited during the assessment year 1995-96. The investment was financed by the loan of Rs. 2 crores taken by the assessee company from Karnataka State Industrial Development Corporation. The assessee paid a sum of Rs. 8,29,041/- towards interest for the aforesaid loan of Rs. 2 crores borrowed. The assessee claimed the said amount as business expenditure under Section 36(1)(iii) of the Act. The assessing authority disallowed the said expenditure on the ground that the loan of Rs. 2 crores borrowed is neither for its business purpose nor for investment purpose. In the business carried on by the assessee company it is borrowed for acquiring working capital of the company M/s Spicer India Limited and therefore it is not allowable. 4. Aggrieved by the same, the assessee preferred an appeal to the Commissioner of Income-tax (A....
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.... was invested in acquiring 25.1% of shades in M/s Spicer India Limited. Therefore, as the borrowed amount was not invested in the business of the assessee which he was carrying on, he is not entitled to claim the interest paid on the said borrowing as business expenditure under Section 36(l)(iii) of the Act. 8. Per contra, the learned counsel for the assessee supported the impugned order and contended that, it is not the requirement of law that the borrowed capital has to be invested in the business which the assessee is carrying on, on the date of borrowing. With that borrowal even if he carries on altogether different business it becomes the business of the assessee and consequently the interest paid towards discharge of the said loan is eligible for business expenditure under Section 36(1)(iii) of the Act. 9. In this connection it is useful to refer to the judgment of the Apex Court in the case of CIT v. Malayalam Plantations Ltd. [1964] 53 ITR 140 (SC), where the phrase "for the purpose of the business" in Section 10(2)(xv) of 1922 Act arose for consideration. The Apex Court held as under:- "8.... The expression "for the purpose of the business" is wider in scope than the ex....
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.... assessee must have used the business asset for doing business in the relevant accounting year; the spending of capital borrowed for purposes of acquisition of business asset, during the relevant accounting year is sufficient, for the entitlement, to the deduction of interest paid under Section 36(1)(iii) of the Act." 11. The Calcutta High Court in the case of CIT v. Jardine Henderson Ltd. [1994] 210 ITR 981/[1993] 70 Taxman 36 held as under : - "6. The Tribunal found firstly that the assessee is not a dealer in shares. Nor does it carry on business in holding of investment. Its business is that of managing agency. Secondly, the shares held by the assessee were with a view to retain the managing agency and were also necessary for such retention. It, therefore, follows from this finding that the investment of borrowed money in these shares was for the purposes of the business of the assessee. Therefore, the borrowal itself was for the purposes of the business and that the interest paid was in respect of such borrowal. On those findings of fact it is not possible to draw a conclusion that the interest paid in respect of such borrowed funds utilised for investment in shares was not ....
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....ilised for the purpose of acquisition to stock-in-trade or for the purpose of acquisition of capital assets. But so long as the money is utilised for business purposes the interest will have to he allowed as deduction. It is well-settled that business expenditure is not confined to expenses incurred on revenue account. Capital expenditure may not be allowed as a deduction under Section 37 because the section specifically bars any deduction of expenditure of capital nature. But, Section 36 is differently worded. There is no bar in Section 36(1)(iii) to allowance of interest paid in respect of capital borrowed which has been utilised for purchase of a capital asset" 13. It is in the background of these judgments we have to see Section 36(1)(iii) of the Act. "36. Other deductions. - (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in Section 28 - (i) & (ii) ** ** ** (iii) the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession : Provided that any amount of the interest paid, in respect of capital borrowed for acqu....