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TMI Blog2005 (4) TMI 582X X X X Extracts X X X X X X X X Extracts X X X X ..... ere utilized for acquiring shares by way of investment a well as by way of stock-in-trade. The cost of shares held by the assessee as investment as on 31-3-1997 was ₹ 2,59,22,692 and the cost of shares held as stock-in-trade on the same day amounted to ₹ 18,56,250. The assessee also acquired shares by way of investment in various companies with a view to acquire controlling rights in certain companies. On the borrowed funds, the assessee paid total interest of ₹ 14,37,255 for which deduction was claimed under section 57(iii) of the Income-tax Act. During the course of the assessment proceedings as also appellate proceedings, the assessee alternatively claimed deduction under section 36(1)(iii) of the Act. The Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... To purchase, acquire, hold, sell, invest, dispose and otherwise deal in shares, stocks, debentures, stock, government securities, bonds, units of any company or other authority-supreme municipality or local. It is contended by the ld. counsel that one of the prominent business activities of the assessee-company is to purchase and deal with shares, stock etc. in consonance with the main object of the company. It is, therefore, submitted that the borrowed funds have been fully utilized in furtherance of the main business activity of the assessee-company and the interest paid by the assessee is fully deductible under section 36(1)(iii). It is further submitted that the shares were acquired by the assessee with a mixed object of making in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to whether the capital was borrowed to acquire a revenue asset or a capital asset. The ld. counsel for the assessee has invited our attention to the relevant observations of the Bombay High Court in the case of Tata Chemicals Ltd. (supra), which are reproduced below from page No. 399 of the Report : We now turn to the question of law set out as (f), which raises a question as to whether the interest attributable to the borrowings for investment in tax-free bonds is allowable under section 36(1)(iii) of the Act. As far as this deduction is concerned, the Tribunal has in Para 66 of the order recorded a positive finding based on evidence that the investment in the tax-free bonds has been in the course of the business. The Tribunal has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bonds was allowable under section 36(1)(iii). The ratio of the Calcutta High Court decision in the case of Rajeeva Lochan Konaria (supra) may be reproduced below from the headnote : Under the provisions of section 36(1)(iii) of the IT Act, 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. 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 utilized for business purposes, the interest will have to be allowed as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) of the IT Act. Here, a reference may be made to the Mumbai, ITAT decision in the case of Uttam Investments (P.) Ltd. (supra) relied upon by the ld. DR. We find that the question regarding deductibility of interest under section 36(1)(iii) was never considered by the Tribunal in the above case. Therefore, the said case does not have much relevance in the present case. 7. After considering the entire facts and circumstances and the legal position as emerging from the various cases referred to supra, we hold that interest expenditure is allowable under section 36(1)(iii) and, therefore, the disallowance to the extent sustained by the ld. CIT(A) is directed to be deleted. 8. The grounds Nos. 5 and 6 pertain to the same issue i.e., con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conversion took place may be verified. The Assessing Officer may also examine whether there is any resolution of the Board of Directors regarding such conversion. It has been stated before us that these shares have been sold during subsequent assessment years. This issue may also be examined with reference to the provisions of section 45(2) of the IT Act. If it is found that the assessee's claim regarding conversion into stock-in-trade is bona fide, the assessee's claim for loss arising on valuation of the stock-in-trade as per the method cost or market price whichever is lower may be accepted by the Assessing Officer. 10. In the result, for statistical purposes, the assessee's appeal is treated as allowed. - - TaxTMI - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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