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The judgment involves the interpretation of provisions of section 36(1)(iii) of the Income-tax Act, 1961 regarding the disallowance of interest payment for investment in shares and the eligibility of deduction for interest paid on borrowed moneys for business purposes. Issue 1: The Tribunal considered whether interest payment could be disallowed for investment in shares when the shares were acquired for acquiring controlling interest in companies, not as stock-in-trade. The Assessing Officer disallowed interest payments made by the assessee on borrowed moneys, treating them as not relating to business activities. The Commissioner of Income-tax (Appeals) upheld the disallowance, but the Tribunal held that interest paid on borrowed moneys for acquiring shares for controlling interest was admissible as a business deduction. The Tribunal found that the investment in shares was connected with the business operations of the assessee, who was engaged in managing and rehabilitating controlled companies. The Tribunal concluded that the interest paid on borrowed moneys for purchasing shares for controlling interest could not be disallowed in computing the business income of the assessee. Issue 2: The Tribunal examined whether the investment in shares was the admitted business for the assessee, who claimed deductions under section 36(1)(iii) of the Act. The Tribunal noted that the assessee's business activity included acquiring shares for managing, controlling, and rehabilitating different companies. The Tribunal emphasized that acquiring controlling interest in companies and managing, administering, financing, and rehabilitating them were for business and/or professional purposes. The Tribunal held that the interest paid on borrowed moneys for purchasing shares for controlling interest was admissible as a business deduction. The Tribunal found that the activity of controlling, managing, administering, and financing companies was a business/professional/vocational activity, entitling the assessee to the deduction under section 36(1)(iii) of the Act. Separate Judgment: The High Court, comprising Judges Suhas Chandra Sen and Arun Kumar Dutta, concurred with the Tribunal's decision. The Court emphasized that as long as the borrowed money was utilized for business purposes, the interest paid on it had to be allowed as a deduction. The Court cited precedents to support the allowance of interest paid on capital borrowed for business purposes, even if the income earned was tax-free. The Court distinguished a previous case where the interest paid on borrowed money was allowed as a deduction under a different section of the Act. The Court affirmed that the assessee's business activities of acquiring shares for managing, controlling, and rehabilitating companies justified the deduction of interest paid on borrowed moneys under section 36(1)(iii) of the Act. Each party was ordered to pay and bear its own costs. Judge Arun Kumar Dutta concurred with the decision.
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