TaxTMI 
TaxTMI 
2026 (5) TMI 857
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....r Section 36(1)(iii) of the Income Tax Act 1961 (for short, "the Act 1961"). 3. It appears from the materials on record that the assessee borrowed a sum of Rs. 3,80,00,000/- (Rupees Three Crore and Eighty Lakh only) from the Corporation Bank to purchase shares of Shaw Wallace and Company Limited in pursuance of an Agreement dated 19-11-1987. Under the said Agreement, the Company had committed to sell 7.80 lakh shares for a total consideration of Rs. 3,80,00,000/-. 4. The assessee filed its return of income for the year 1989-90 declaring total income of Rs. 7,55,67,530/- (Rupees Seven Crore, Fifty Five Lakh, Sixty Seven Thousand Five Hundred and Thirty only). The return was processed under section 143(1)(a) of the Act and later Notice was issued under Section 143(2). While passing the Assessment Order way back in 1992, the Assessing Officer noted that the assessee had availed a loan of rupees Rs. 3,80,00,000/- from the Corporation Bank and had paid interest of Rs. 21,74,234/-. However, the AO further noted that the amount had been transferred to M/s Gayatri Holdings Private Limited, a group company, through purchase of its shares, who in turn transferred the amount to one Shri....
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....4,234/- to the bank on the borrowings made by it and has claimed the said amount as deduction by way of charge to P&L A/c. 15. Before we conclude on this, we may mention that it is observed that the appellant has more than one source of income under the head 'business' as it is deriving income from businesses of moneylending, speculation business, film distribution and also investment in shares. It is an admitted fact that the appellant-trust has maintained only one common set of books of account in which are incorporated entries pertaining to these business of film distribution, money lending, investments, speculation etc. The management of the entire set of operations is vested in the trustees as can -be observed from the trust deed discussed earlier and there is complete interlocking of funds. To emphasize, it is our view that the business of the appellant is also a composite one in as much as it carries on several businesses including the business of investment in shares through its subsidiaries. 16. The Hon'ble Supreme Court of India in the case of CIT Vs. Associated Fibre and Rubber Industries (P) Ltd. (1999) 236 ITR 471 has opined that as long a....
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....cial pronouncements, we conclude by holding that a sum of Rs. 21,74,234 /- paid by the appellant-trust as interest to the Corporation Bank on borrowings of Rs. 3.80 crores is eligible for deduction under Sec. 36(1)(iii) of Income-tax Act. Therefore, the assessee succeeds on this ground and the orders of the lower authorities are reversed." 7. The Revenue, being dissatisfied with the Order passed by the ITAT, went before the High Court. 8. The appeal preferred by the Revenue came to be admitted by the High Court on the following two substantial questions of law: 1. Whether the assessee who is carrying on film business is entitled to claim deduction under Section 36(1)(iii) of the Act in respect of interest of Rs. 21,74,234/- on amount borrowed from corporation bank to purchase shares of Shaw Wallace and Company Limited on behalf of itself and other film? 2. Whether the assessee and its beneficiaries who of Rs. 3,80,00,000/- and borrowed transferred the same to M/s. Gayathri Holding Private Limited who in turn advanced this amount to G. Venkateswaran to purchase shares on his behalf and on behalf of M/s. Sujatha Films Limited, Sujatha Productions Private Limit....
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....n the books of account or not); for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction. Explanation.- Recurring subscriptions paid periodically by shareholders, or subscribers in Mutual Benefit Societies which fulfill such conditions as may be prescribed, shall be deemed to be capital borrowed within the meaning of this clause." 13. The sub section has three important words or phrases, i.e., (i) Interest, (ii) Borrowed and, (iii) For the purpose of business or profession. 14. The definition of "interest" in Section 2(28A) means "interest payable in any manner in respect of any moneys borrowed or debt incurred". But for Section 36(1)(iii), "interest" is restricted to that on money borrowed and not on debt incurred. In other words, the essence of interest is that it is a payment which becomes due because the creditor has not had his money at his disposal. It may be regarded either as representing the profit he might have made if he had had the use of his money, or conversely, the loss he suffered because he ....