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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 ..... idered by the Calcutta High Court in CIT v. Rajeeva Lochan Kanoria, [1994 (2) TMI 42 - CALCUTTA High Court] - when the assessee claims deduction of interest paid on capital borrowed, all that the assessee has to show is that the capital which was borrowed was used for 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 - if the funds are borrowed by an investment company for making investment in shares which may be held as investment or as stock-in-trade or for the purpose of controlling interest in other companies, interest paid on such borrowed funds will be deductible under section 36(1)(iii) of the Income-tax Act - there is nothing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the interest income has to be assessed under the head other sources and not under the head business income . 3.3. Assailing the said order, the assessee preferred appeals before the Commissioner of Income Tax (Appeals), who held that the activity of the assessee in investing in shares and debentures should be treated as conscious and deliberate business activity forming part of its finance business and, therefore, interest arising thereon should be assessed under the head business income and not under the head other sources. Thus, the disallowance made by the Assessing Officer was deleted. 3.4. Calling in question the said order passed by the Commissioner of Income Tax (Appeals), the department filed appeals before the Tribunal. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anguage employed in the said provision is plain and unambiguous. The intendment of the said provision is that so long as the assessee has utilized the capital borrowed for the purpose of business, the amount of interest paid in respect of such capital borrowed should be allowed as deduction. 6. In the case on hand, it is beyond any cavil that capital was borrowed by the assessee and interest was paid on the borrowed capital. The amount so borrowed was invested in shares and debentures for the purpose of business. When the amount is thus utilized for business purpose, in our considered opinion, the interest paid will have to be allowed as deduction in terms of Section 36(1)(iii) of the Act. 7. The scope and ambit of Section 36(1)(iii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ession may be utilised for the purpose of acquisition of stock-in-trade or for the purpose of acquisition of capital asset. The learned court took a view that under section 36(1)(iii) there is no bar for allowance of interest paid in respect of capital borrowed which has been utilized for the purpose of acquisition of capital assets. Considering this the learned Income-tax Appellate Tribunal held that if the funds are borrowed by an investment company for making investment in shares which may be held as investment or as stock-in-trade or for the purpose of controlling interest in other companies, interest paid on such borrowed funds will be deductible under section 36(1)(iii) of the Income-tax Act. After recording this finding, it held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee claims deduction of interest paid on capital borrowed, all that the assessee had to show was that the capital which was borrowed was used for business purpose in the relevant year of account and it did not matter whether the capital was borrowed in order to acquire a revenue asset or a capital asset.' It may be noted that in India Cements Ltd. [1966] 60 ITR 52 the apex court was specifically pleased to observe that the object of the loan is an irrelevant consideration. In the State of Madras v. G. J. Coelho [1964] 53 ITR 186 (SC) the Supreme Court was dealing with the deduction claimed under section 5(e) of the Madras Plantations Agricultural Income-tax Act, 1955. While considering the issue the court was pleased to observe t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is well settled that business expenditure is not confirmed to expenses incurred on revenue account. Capital expenditure may not be allowed as a deduction under section 37 because the section specifically bars any deduction of expenditure of capital nature. But section 36 is differently worded. There is no bar in section 36(1)(iii) to allowance of interest paid in respect of capital borrowed which has been utilised for purchase of a capital asset. The position of law in this regard was explained by the Supreme Court in the cases of India Cements Ltd. v. CIT [1966] 60 ITR 52 (SC) and State of Madras v. G.J. Coelho [1964] 53 ITR 186 (SC).' (emphasis supplied) 8. We have considered the reasoning given in the decisions referred to sup ..... X X X X Extracts X X X X X X X X Extracts X X X X
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