TaxTMI 
TaxTMI 
2012 (5) TMI 391
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..../s Strayfield Ltd., U.K. and the new owners M/s Inductoheat offered the stake in M/s Strayfield Ltd., U.K. to M/s Monga Electronics P. Ltd. After the due diligence, M/s Monga Strayfield India bought the shares of M/s Strayfield Ltd., U.K. According to the AO, the assessee company thus acquired shares of M/s Strayfield Ltd., U.K. for total consideration of Rs.2,20,37,400/- which was duly reflected in its balance sheet under the head "Investment" In connection with the said acquisition, the assessee company incurred expenditure on legal and professional fees amounting to Rs.25,90,945/- and travelling expenses amounting to Rs.18,34,185/-. It also incurred expenditure of Rs.11,61,275/- towards charges for obtaining the letter of credit and Rs.7,90,200/- for franking of mortgage. The other charges amounting to Rs.4,52,441/- were also incurred by the assessee which was directly relatable to the loan taken by the assessee to fund the investment made in the shares of M/s Strayfield Ltd., U.K. According to the AO, all these expenses incurred by the assessee aggregating to Rs.51,71,013/- in connection with acquisition of shares were capital in nature and accordingly the assessee was called u....
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....r bank borrowing and hence part take the nature of interest expenses. (g) The break-up of bank charges and interest as required in para five and six of your letter is enclosed. The interest as well as bank charges are incurred in the normal course of existing business of the company. The above explanation offered by the assessee was not found satisfactory by the AO. According to him, the cost of acquisition of shares having been shown by the assessee under the head "Investment" in its balance sheet, the expenditure directly relatable to the acquisition of shares was liable to be treated as capital in nature. For this conclusion, he relied on the decision of Hon'ble Supreme Court in the case of Punjab State Industrial Development Corporation vs. CIT 225 ITR 792 and disallowed the claim of the assessee for deduction on account of expenses incurred in relation to acquisition of shares treating the same as capital in nature. 3. The disallowance made by the AO on account of expenditure incurred in relation to acquisition of shares was challenged by the assessee in an appeal filed before the learned CIT(Appeals). During the course of appellate proceedings be....
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....against indirectly as against any expansion of the business as has been vehemently claimed by the appellant company. Further it is also true that the company is snot in the business of acquisition of shares and therefore the expenses could not be treated as for the purpose of the existing business and since entire exercise is nothing but acquisition of shares which is nothing but capital acquisition the expenses incurred could not be treated as revenue expenses. It is in this perspective that the reliance placed by the appellant company on various judicial pronouncements are of no avail and therefore the same can not come to the rescue of the appellant company. Further appellant had not brought on record any material to show as to how the appellant company's title and the business was under threat that such expenses were necessary may it be true that acquisition of such shares by some other counterpart may have impact of existing share holders or promoter of the appellant company nevertheless such expenses could not held expended to save the business of the appellant company and therefore since the appellant is not in the business of acquisition of shares I am not inclined to accep....
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....cquired shares of M/s Strayfield U.K. ii) The assessee formed a new subsidiary i.e. M/s Monga Strayfield Ltd. U.K. who purchases the business division relating to R.F. Dryers. iii) The shares are reflected as investment in the balance sheet. iv) The expenses which are claimed were incurred during planning stage. The assessee had to plan the strategy to acquire the R.F. Dryers business division. These expenses are revenue in nature. v) The expenses incurred for consultation with lawyers, travelling fees, interest on borrowing from banks to fund the acquisition are not directly related to acquisition. They are rather revenue in nature incurred in routine course of business allowable u/s 37. vi) Without prejudice to above, the expenses incurred for acquiring the shares of Foreign subsidiary is allowable as business expenditure as the dividend from Foreign subsidiary is taxable. vii) The assessee has received dividend of Rs.20,14,400/- (40,000 USD) for the year 2008-09 and offered for taxation. 6. Keeping in view the explanation offered by the learned counsel for the assessee while clarifying the relevant factual pos....