2016 (7) TMI 1091

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...."iii) Whether in the facts and in the circumstances of the case the Learned Income Tax Appellate Tribunal has grossly erred in upholding the order of the Assessing Officer and order of the Commissioner of Income Tax (Appeals), Chandigarh with regard to the disallowance of interest amounting to Rs. 28,70,608/- u/s 36(1)(iii) of the Income Tax Act which is the actual expenditure incurred by the appellant but neither allowed as a deduction u/s 36(1)(iii) as business expenditure nor treated as capital expenditure?" The appeal is admitted on the above substantial question of law. 2. The appellants - a partnership firm sought a deduction under Section 36(1)(iii) of the Income Tax Act, 1961, in respect of the interest paid by them. The appel....

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....n by an order dated 10.02.2016 in view of Circular No.21/2015 dated 10.12.2015 issued by the CBDT. The withdrawal of ITA No.228 of 2012 cannot, therefore, preclude the department from raising the contentions in this appeal. The Tribunal, by the impugned order, confirmed the assessment order and the order of the CIT (Appeals). 4. To reiterate, the appellants' case is this. The appellants had borrowed funds from institutions and banks in order to advance the same to their partners. The appellants paid interest to the bank and the financial institutions in respect of the funds borrowed. The appellants did not charge their partners interest in respect of the loans advanced to their partners. The partners utilized the loan for the purchase....

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....sset till the date on which such asset was first put to use, shall not be allowed as deduction." 6. We have assumed the appellants' case on facts to be well-founded. We would further assume that the interest was paid by the appellants in respect of the capital borrowed for the purpose of their business despite the fact that the appellants in turn advanced the amounts to their partners without charging interest, for the arrangement was to enable the partners to purchase the properties and make the same available for the appellants' business. We will, therefore, assume that the appellants have also established commercial expediency in respect of this business arrangement by the acquisition of the property. The matter, however, does not end....

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....ed even otherwise, such as, for instance, by way of lease or license. Black's Law Dictionary (Ninth Edition) defines "acquisition" as follows:-             "acquisition, n. (14c) 1. The gaining of possession or control over something ..... ..... .. ." 10. Possession of rights and interest in an asset can be gained in several ways and not merely by the purchase thereof. It can be gained for instance by virtue of or under a lease, licence or on rent. If the legislature intended restricting the ambit of the proviso to capital borrowed for the purchase of an asset, it would have provided so expressly. The legislature has deliberately used a wider expression "acquisition of an asset" t....