1994 (3) TMI 65 - HC - Income Tax

Summary

Issues:
- Allowability of interest payments as deductions under various sections of the Income-tax Act, 1961 for the assessment years 1960-61 to 1963-64.

Analysis:
The judgment delivered by the High Court of Bombay involved the case of an assessee, Messrs. Modi Pvt. Ltd., concerning the deductibility of interest payments made on borrowings for purchasing shares of two companies. The assessee had acquired shares of Western India Theatres Ltd. and Associated Bombay Cinemas Ltd. by resorting to borrowings, incurring interest payments over the years. The Tribunal allowed the interest payments as deductions under different sections of the Income-tax Act, 1961, considering them as business expenditure closely related to the conduct of the assessee's business. The Tribunal held that the interest paid on borrowings for purchasing shares of Western India Theatres Ltd. was deductible under section 10(2)(xv) of the Indian Income-tax Act, 1922, or section 37(1) of the Income-tax Act, 1961. Similarly, the interest paid for acquiring shares of Associated Bombay Cinemas Ltd. was allowed as a deduction under section 57(iii) of the Income-tax Act, 1961, as it was spent wholly and exclusively for the purpose of making or earning income.

The High Court, in its judgment, referred to a prior case involving the same assessee and agreed with the Tribunal's decision regarding the deductibility of interest payments for purchasing shares of Western India Theatres Ltd. The Court upheld the Tribunal's view that the interest paid on borrowings for acquiring shares of Associated Bombay Cinemas Pvt. Ltd. was also eligible for deduction under section 57(iii) of the Income-tax Act, 1961. The Court concurred that the expenditure on interest payments was laid out or expended wholly and exclusively for the purpose of making or earning income, thereby justifying its deductibility.

In conclusion, the High Court answered the question referred under section 256(1) of the Income-tax Act, 1961, affirmatively and in favor of the assessee, allowing the interest payments as deductions for the relevant assessment years. The Court did not award any costs in this matter, thereby concluding the judgment.