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Issues Involved:
The judgment involves the interpretation of deduction under section 57(iii) of the Income-tax Act, 1961 for interest on loans raised to acquire shares in a company with the intention of acquiring control over the said company. Summary: The case involved the assessee claiming deduction under section 57(iii) of the Income-tax Act for interest paid on loans obtained to acquire shares in a company with the aim of acquiring controlling interest. The Income-tax Officer disallowed the claim, stating that the interest on money borrowed for purchasing shares was not allowable under section 57(iii) as it was for acquiring controlling interest. The Appellate Assistant Commissioner and the Tribunal also deliberated on the purpose of the loan, with the Tribunal ultimately allowing the deduction based on the immediate purpose of acquiring shares to earn income from dividends. The High Court analyzed the provisions of section 57(iii) which allow deductions for expenditure incurred wholly and exclusively for making or earning income from other sources, excluding capital expenditure. The court emphasized that the primary motive of the expenditure must be to earn income from other sources. Referring to precedents, the court highlighted that if the dominant purpose of the expenditure was not to earn income, it would not qualify for deduction under section 57(iii). The court also distinguished between section 37 and section 57(iii) in terms of the purpose of the expenditure, noting that section 57(iii) requires the primary motive to be directly earning income from other sources. Ultimately, the court ruled in favor of the Revenue, stating that the expenditure incurred for borrowing money to acquire shares for controlling interest in a company was not wholly and exclusively for earning income from dividends, thus not qualifying for deduction under section 57(iii). The judgment was based on the specific purpose of the expenditure and the legislative intent behind section 57(iii). This judgment clarifies the criteria for claiming deductions under section 57(iii) of the Income-tax Act and provides insights into the interpretation of expenditure incurred for specific purposes related to earning income from other sources.
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