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TMI Blog2014 (11) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... espectively. 3.1. The facts in a nutshell are as under: The assessee is a partnership firm engaged in the business of advancing loans and earning income from hire purchase financing, besides investments in shares and debentures. The assessee borrowed funds and invested the same in shares and debentures. The assessee treated the interest arising out of such investments as income from business and claimed deduction under Section 36(1)(iii) of the Income Tax Act, 1961 (for brevity, the Act ). 3.2. The Assessing Officer, however, held that the investments were not held as trading assets and they can only be treated as capital assets and, therefore, the interest income has to be assessed under the head other sources and not under the head busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Income Tax Act, which reads as under: "Section 36. Other deductions. - (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28 (i) to (ii) *** (iii) the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession. (emphasis supplied) 5. From a bare reading of Section 36(1)(iii) of the Act, it is clear that deduction shall be allowed in respect of the amount of interest paid if the capital is borrowed for the purpose of business or profession. The language employed in the said provision is plain and unambiguous. The intendment of the said provision is that so long ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business purpose in the relevant year of account and it does not matter whether the capital was borrowed or not to acquire revenue asset or capital asset. The learned Tribunal also relied on the judgment of the Calcutta High Court in the case of CIT v. Rajeeva Lochan Kanoria [1994] 208 ITR 616 where the Calcutta High Court took a view that under the provisions of section 36(1)(iii) of the Income-tax Act, the only enquiry 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. Such amount borrowed, if for the purpose of business or profession may be utilised for the purpose of acquisition of stock-in-trade or for the purpose of acquisition of capital a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e adjudicating the claim for deduction under section 36(1)(iii) of the Act, the nature of the expense-whether the expense was on capital account or revenue account-was irrelevant as the section itself says that interest paid by the assessee on the capital borrowed by the assessee was an item of deduction. That the utilization of the capital was irrelevant for the purpose of adjudicating the claim for deduction under section 36(1)(iii) of the Act. (see the judgment of the Bombay High Court in the case of Calico Dyeing and Printing Works v. CIT [1958] 34 ITR 265). In that judgment, it has been laid down that where an assessee claims deduction of interest paid on capital borrowed, all that the assessee had to show was that the capital which wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iry 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 utilized for the purpose of acquisition of 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 be allowed as deduction. It is well settled that business expenditure is not confirmed to expenses incurred on revenue account. Capital expenditure may not be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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