2017 (8) TMI 647

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....w : 1.Whether in the facts and circumstances of the case and in law the Income Tax Appellate Tribunal was legally justified in allowing the payment of Rs. 3,25,00,000/- to Mr.G.R.Hada, u/s.57(iii) of the I.T. Act when such payment was made for enlarging the control and management over M/s.Andhra Pradesh Rayon Ltd. ?" 3. The respondent/assessee along with M/s.Andhra Pradesh Industrial Development Corporation (APIDC) and Mr.G.R.Hada had jointly promoted M/s.Andhra Pradesh Rayons Ltd. (A.P. Rayons Ltd.). The shareholding in M/s. A.P. Rayons Ltd. was distributed amongst the promoters in terms of Memorandum of Understanding dt.31.10.1977 (M.O.U.) as under : Public : 49 % APIDC : 10 % Mr.G.R. Handa & its Associates : 10.25....

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....)]. The Respondent/Assessee before the CIT (A) had made an alternate claim for deduction of Rs. 3.25 Crores, u/s.57 of the Act. The CIT (A) by his Order dt.18.12.1998 held that the deduction as claimed of Rs. 3.25 Crores is a revenue expenditure inasmuch as he held that the same would be allowable u/s.57 of the Act provided the income by way of interest/dividend was earned on the expenditure incurred during the subject Assessment Year. However, on facts, the CIT (A) found that there was no income/interest earned during the subject Assessment Year. Therefore, the benefit of deduction u/s.57(iii) of the Act could not be extended to the Respondent/Assessee. 8. Being aggrieved with the Order dated 18.12.1998 of the CIT (A), the Respondent/As....

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....shares in Andhra Pradesh Rayons Ltd. to earn dividend income. Therefore, the appeal of respondent/assessee was allowed. 10. Mr.Bhattad, learned Counsel for the appellant/revenue in support of the appeal submits that the impugned order could not allow the Respondent/Assessee's appeal as the amount of Rs. 3.25 Crores paid to Mr.G.R.Hada was in the nature of capital expenditure so as to acquire control of M/s.A.P.Rayons Ltd. In support, reliance is placed upon the decision of Gujarat High Court in Sarabhai Sons (P) Ltd. vs. Commissioner of Income Tax, (1993) 201 ITR 0464. According to the Revenue, the decision of the Apex Court in Rajendra Prasad Moody (supra) would have no application to the present facts. 11. In response, Mr.Dewani....

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....t in Rajendra Prasad Moody (Supra). In fact, the only requirement is that the expenditure is with the object of earning income and not dependent upon actual earning of income in fact. In this case, the impugned Order of the Tribunal has recorded a finding that the amount of Rs. 3.25 Crores were paid to Mr.G.R.Handa by the Respondent/Assessee only with a view to safeguard its investment in M/s.A.P.Rayons Ltd. so as to earn dividend/interest income. 13. The decision of Gujarat High Court in Sarabhai Sons (P) Ltd. (supra) relied upon by the Revenue would have no application to the present facts, as it found on facts in the above case that the shares were acquired from other shareholders so as to have 100% control over Swastic Oil Mills Ltd.....