AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (2) TMI 397
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.... for final disposal along with the other appeals. 3. The following questions of law arise for consideration in these appeals: - "Whether the assessee was entitled to deduction of interest/service charges paid on funds raised to subscribe to the rights issue and for retaining control of 28% of its holding in M/s Shreyans Industries Limited?." 4. The brief facts are that the assessee, an investment company had reported for the assessment years 1992-93, a loan transaction to fund its subscription to the tune of Rs. 1,50,00,000/- in Shreyans Industries Ltd. The assessee was a shareholder in that company and wished to subscribe to certain debentures which had both convertible and non-convertible elements. The assessee was an exist....
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....re accepted by the CIT (A) for all the years in which the reassessments were concluded. The Revenue's appeal was rejected by the ITAT by different orders. In these circumstances, the Revenue had approached this Court by filing different appeals - two of them being ITA 147/2005 (relating to AY 1992-93) and ITA 675/2004 (relating to AY 1995-96) were rejected by this Court on 19.04.2011 on the ground that the tax effect was lower than the stipulated amounts at that period of time. It is, in these circumstances, that the surviving appeals for AY 1993-94 (ITA 709/2004); for AY 1996-97 (ITA 37/2005) and for AY 1994-95 (ITA 636/2004) are listed for disposal. The amounts disallowed in these three cases are Rs. 10 lacs (for AY 1993-94), ....
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...., for the later years, there could have been no question for different treatment. Counsel relied upon the judgment of the Madras High Court reported as CIT v. M Ethurajan (2005) 273 ITR 95 (Mad.); CIT v. Model Manufacturing Company, (1990) 122 ITR 767 (Cal.) and India Cements Ltd. v. CIT, (1966) 60 ITR 52 (SC). 7. In the present case, shorn of complexities which followed the transaction, LIC Mutual Funds financed the assessee's acquisition of the debentures which it invested in. No doubt, in the first instance, the LIC Mutual Funds was an allotee. This appears to be one of the important consideration which weighed with the Revenue in disallowing the interest expenditure apart from others. On this aspect, the CIT (A)....
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....act makes it clear that the LIC Mutual Fund did not wish to advance a straight loan to the appellant company but intended to give it in an indirect manner with checks and balances, as per the terms of the agreement. 5.5 It is very clear that had the appellant company not subscribed through LIC Mutual Fund to the right offer the holdings of the promoters would have fallen below 28% in M/s Shreyans Industries Limited. Therefore, the business exigencies demanded that the promoters, including the appellant company, get the right offer subscribed and this compulsion became the genesis of the said buy back agreement, which was necessary because the appellant-company was facing a paucity of funds." In light of the above findings, the CIT (....
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....lusion by the decision of this court in Chinai and Co. Pvt. Ltd. v. CIT [1994] 206 ITR 616. In that case, there was a dispute in regard to deduction of expenditure under Section 37 of the Act. The expenditure was incurred by the assessee in fighting another group of shareholders to protect the investment in the erstwhile managed company. The court held that such an expenditure was not a business expenditure. It was observed that Section 37 of the Act dealt with deductions, inter alia, of any expenditure laid out or expended wholly and exclusively for the purposes of business or profession. Such deduction has to be in respect of any expenditure for business which was carried on by the assessee at any time during the previous year. It was hel....
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....tentions that it suffered a capital loss in the first year, i.e., 1992-93 has gone uncontested; in fact that was given the treatment that it reported. This meant that the expenditure was treated as capital, even though the debentures were not allotted in the name of the assessee. In this regard, the CIT (A) and the ITAT's findings that the assessee's status as the beneficiary or de facto owner of the debentures remains undisputed. Such being the case, the question of the essential nature of the transaction not reflecting as such in the hands of the assessee for later years, does not arise. 10. Consequently and more fundamentally the interest expenditure in the present case is not of the kind that went into capital stream. ....