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TMI Blog2011 (8) TMI 446X X X X Extracts X X X X X X X X Extracts X X X X ..... n all these appeals and the assessee is also same but they pertain to different assessment years, they are taken up together for consideration and disposed of by this common order. 2. These appeals are filed by the revenue challenging the order passed by the Tribunal which has upheld the order of the Appellate Commissioner allowing deduction of interest under Section 36(1)(iii) of the Income-tax Act, 1961. 3. The assessee is in the business of rendering technical service. During the relevant year the assessee company had entered into an arrangement with Dana Corporation of USA for doing business together of manufacturing automobile ancillary and component for automobile Industry in India. For this purpose they had formed a company by the name Spicer India Limited. As per the arrangement between Dana Corporation, USA and Anand Group of Industries - the assessee company belongs to this group of companies - Dana Corporation. USA and Anand Group acquired shares of M/s Spicer India Limited in the ratio of 74.9% and 25.1% respectively. The assessee company invested Rs. 2.22 crores in the share capital of M/s. Spicer India Limited during the assessment year 1995-96. The investment was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Aggrieved by the said order, the revenue is in appeal. 6. These appeals were admitted to consider the following substantial question of law : - "Whether the Appellate authorities were right in holding that investment made by the assessee in M/s Spicer India would earn income in view of investment made by it was for the purpose of business and interest paid is allowable as deduction under Section 36(1)(iii) of the Income Tax Act? 7. Learned counsel for the revenue assailing the impugned order contends that, from the undisputed facts it is clear that, the assessee is carrying on the business of Technical Consultancy. Rs. 2 crores borrowed is not invested in the business of technical service which is the business of the assessee. On the contrary the said amount was invested in acquiring 25.1% of shades in M/s Spicer India Limited. Therefore, as the borrowed amount was not invested in the business of the assessee which he was carrying on, he is not entitled to claim the interest paid on the said borrowing as business expenditure under Section 36(l)(iii) of the Act. 8. Per contra, the learned counsel for the assessee supported the impugned order and contended that, it is not t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... make the expenditure any the more expenditure inclined in the conduct of the business. It is manifest that the amounts in question were paid by the assessee as a statutory agent to discharge a statutory duty unconnected with the business, though the occasion for the imposition arose because of the territorial nexus afforded by the accident of its doing business in India. We therefore, hold that the estate duty paid by the respondent was not an allowable deduction under Section 10(2)(xv) of the Act We answer the question in the negative. The order of the high Court is wrong and is set aside." 10. This Court in the case of C.T. Desai v. CIT [1979] 120 ITR 240/[1980] 3 Taxman 57 held as under : "5. ..... Under Section 36(1)(iii) of the Act, it is not necessary that the assessee must have used the business asset for doing business in the relevant accounting year; the spending of capital borrowed for purposes of acquisition of business asset, during the relevant accounting year is sufficient, for the entitlement, to the deduction of interest paid under Section 36(1)(iii) of the Act." 11. The Calcutta High Court in the case of CIT v. Jardine Henderson Ltd. [1994] 210 ITR 981/[1993 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orrowal for the purpose of the shares was for the managing agency business of the assessee and to retain its grip over the managing agency business." 12. In yet another judgment, the Calcutta High Court in the case of CIT v. Rajeeva Lochan Kanoria [1994] 208 ITR 616/ [1995] 80 Taxman 572 explaining the meaning of the words 'business expenditure', held as under:- "5 The only enquiry that is to be made is whether the payment of interest was in respect of capital borrowed for the purpose of the assessee's business or profession. There is no dispute that the capital was borrowed in the instant case and interest was paid on the borrowed capital. It is to be established that the amount was borrowed for the purpose of business or profession. The amount borrowed may be utilised for the purpose of acquisition to stock-in-trade or for the purpose of acquisition of capital assets. But so long as the money is utilised for business purposes the interest will have to he allowed as deduction. It is well-settled that business expenditure is not confined to expenses incurred on revenue account. Capital expenditure may not be allowed as a deduction under Section 37 because the section specific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. If the intention is to get only dividend it cannot be construed as an investment in business or profession. On the other hand if the investment in shares is made with the intention of carrying on business and the receipt of dividend is only incidental or ancillary, then Section 36(1)(iii) is attracted. 15. In the instant case the assessee is carrying on the business of rendering technical assistance. The amount which is borrowed is not used in rendering technical service. It is invested in acquiring 25.1% of shares in M/s Spice India Limited, the intention of investment of the shares is to carry on business and not to be content with by receiving dividend. This argument has been rejected by the assessing authority on the ground that acquiring shares to the extent of 25.1% would not give him a control over the company. In law to carry on business one need not have majority shares. With a proper understanding with the persons who have invested the money he could carry on the business. In the instant case, probably to carry on the business of the said company technical service is required which is provided by the assessee. In addition to that to have control over the company the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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