1996 (7) TMI 176

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.... The appeal arises this way. The ITO found from the accounts of the company that though the assessee had claimed a huge sum as interest in the profit and loss account and the accounts also showed that some interest receipt from investments made by the company, there were certain investments in the shares of the group companies which did not yield any income during the relevant accounting year. He further found that the total amount invested in the shares of such companies which he characterised as ' group companies ' and which amounted to 19 in number, was Rs. 37.40 lakhs. No dividend has been received by the assessee from these shares. The ITO on these facts was of the opinion that " most of such investments have been made in order to have....

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....ave a controlling interest over those companies. There is no factual basis, so far as we can see, for this finding but even assuming for the sake of argument that the shares were so acquired that would only show the motive of the assessee, as contrasted with its intention, which is to earn dividend income. While considering the applicability of the provisions in the Income-tax Act permitting deductions in respect of expenditure incurred by the assessee, whether the provisions related to the computation of business income or the income from other sources, the motive of the assessee has never been held to be a relevant consideration. Changla, C.J. considered the motive of the assessee to be an entirely irrelevant consideration for the purpose....

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....t the purpose of the purchase is a different matter." This decision was approvingly cited by the Supreme Court in the case of Seth R. Dalmia v. CIT [1977] 110 ITR 644 (see page 652). The Supreme Court again brought out the distinction between the motive and the purpose of the expenditure with reference to section 10(2)(xv) of the old Act in the case of Sassoon J. David & Co. (P.) Ltd v. CIT [1979] 118 ITR 261/1 Taxman 485. The distinction has been brought out at page 273. The distinction between the motive and purpose has been brought out by the Calcutta High Court in the case of British Electrical & Pumps (P.) Ltd v. CIT [1977] 106 ITR 620. At page 624 of the report it has been held with regard to section 37(1) of the 1961 Act that the se....

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....ourt. We follow the said decision with respect and draw similar distinction between motive and purpose and hold that in the instant case, though the ultimate or ulterior motive of the assessee might have been to confer controlling interest either to itself or to the Kanorias, yet the immediate purpose for acquisition of the shares was to earn income from the dividends thereof. We add that even if the motive of the assessee might have been to obtain control of another company, the consequent purchase of shares may still be treated as investment and the concurrent purpose of the assessee could well have been that of earning further income by acquiring the control of the other company." (page 777) 5. The application of the principles laid do....