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TMI Blog2012 (5) TMI 391X X X X Extracts X X X X X X X X Extracts X X X X ..... facts of the case as mentioned by the AO in his order are as follows: The assessee is a company which was incorporated in India in July, 1996 as a joint venture company of M/s Monga Electronics P. Ltd. and M/s Strayfield Ltd., U.K. with each having 50% shareholding. It is engaged in the business of manufacture and sale of Radio Frequency Textile Yarn Dryer. There was a change in the owner of M/s Strayfield Ltd., U.K. and the new owners M/s Inductoheat offered the stake in M/s Strayfield Ltd., U.K. to M/s Monga Electronics P. Ltd. After the due diligence, M/s Monga Strayfield India bought the shares of M/s Strayfield Ltd., U.K. According to the AO, the assessee company thus acquired shares of M/s Strayfield Ltd., U.K. for total consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being legal and professional fees, travelling expenses, bank charges and interest. They have been incurred for expansion of the existing business and not for acquiring any fixed assets nor for any new ventures/set-up of new business. (d) The investment in shares is for a capital assets which is financial assets as per section 55(2)(aa) and its cost of acquisition is the amount actually paid for acquiring said shares. The accounting standard AS 13 also prescribes the same treatment. (e) Interest paid amount borrowed for the purpose of acquiring share in the business of another transport company by the transport company was allowed per P.V. Mohamed Ghouse v. CIT (1963) 43 ITR 127(Mad.). (Law and Practice of Income Tax Volume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lance sheet, the expenditure directly relatable to the acquisition of shares was liable to be treated as capital in nature. For this conclusion, he relied on the decision of Hon'ble Supreme Court in the case of Punjab State Industrial Development Corporation vs. CIT 225 ITR 792 and disallowed the claim of the assessee for deduction on account of expenses incurred in relation to acquisition of shares treating the same as capital in nature. 3. The disallowance made by the AO on account of expenditure incurred in relation to acquisition of shares was challenged by the assessee in an appeal filed before the learned CIT(Appeals). During the course of appellate proceedings before the learned CIT(Appeals), it was submitted on behalf of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whose in turn holding was then taken over by other group of company. Since the new management was not interested to hold the stake in appellant's company they decided to be offload the same. It is under these circumstances the appellant company had decided to form a subsidiary to more particularly acquired the stake of the appellant company which was decided to be offloaded by the management of UK counterpart. It is therefore not in doubt that what the company has acquired is nothing but a stake of foreign partner through a subsidiary formed for the purpose. The formation of subsidiary was nothing but a step towards acquisition of the foreign partner's stake in the company as against expansion of existing business as has been claimed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect on reducing the capital base of the company which is very well deemed to be nothing but capital in nature and accordingly the reliance placed by the AO on judicial pronouncement in case of Punjab State Industrial Development Corpn. vs. CIT 225 ITR 792 is more apt and applicable to the appellant's case and therefore considering the facts of the case I am not inclined to accept the arguments of the appellant company and hence this ground of appeal is therefore dismissed." Aggrieved by the order of the learned CIT(Appeals), the assessee has preferred this appeal before the Tribunal. 4. We have heard the arguments of both the sides and also perused the relevant material on record. After having considered the relevant record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w subsidiary i.e. M/s Monga Strayfield Ltd. U.K. who purchases the business division relating to R.F. Dryers. iii) The shares are reflected as investment in the balance sheet. iv) The expenses which are claimed were incurred during planning stage. The assessee had to plan the strategy to acquire the R.F. Dryers business division. These expenses are revenue in nature. v) The expenses incurred for consultation with lawyers, travelling fees, interest on borrowing from banks to fund the acquisition are not directly related to acquisition. They are rather revenue in nature incurred in routine course of business allowable u/s 37. vi) Without prejudice to above, the expenses incurred for acquiring the shares of Fore ..... X X X X Extracts X X X X X X X X Extracts X X X X
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