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TMI Blog2016 (2) TMI 401X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of interest claimed by the assessee is in respect of capital borrowed for the purpose of business or profession carried out by the assessee company during the year, therefore, the interest paid on the capital borrowed for business purposes has to be an allowable business expenditure and the same cannot be denied. We also find that it is very specifically mentioned in the objects of the MOU that assessee company is to make strategic investment in the business entities and accordingly, it has made strategic investment in Bharti AXA Insurance Co. Ltd. Therefore, we find that the interest expenditure incurred by the assessee is for business purposes. And also, this fact is acknowledged by the AO himself in the assessment order wherein he has stated that assessee has "parked its investible funds in the equity shares of a closely associated concern". Hence, we find that there was no basis for treating the interest expenditure claimed by the assessee as capital expenditure. - Decided against revenue - ITA No.4768/Del./2012 - - - Dated:- 11-1-2016 - SHRI A.T. VARKEY, JUDICIAL MEMBER and SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER For The Assessee : Shri Sumit Mangal, CA and Ms. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature being related to long term investment in unquoted shares of a jointly controlled entity. However, the AO observed that no specific reply was furnished by the assessee. It was further observed that the assessee had made the investment in the shares of a jointly controlled entity for the purpose of substantial control over such entity and the shares were not tradable freely being unquoted and the investments were also classified as long term. In view of the nature of the investment, the AO observed that the apparent purpose of strategic control and close nexus between the assessee and the investee concern, it could be safely concluded that it was not a trade investment for business purposes. The AO further observed that by mere description of its business as that of making strategic investments, the assessee could not camouflage the real nature of the transaction which was to acquire management control over the organization, which was a transaction on the capital account. Accordingly, the AO held that the interest expenses of ₹ 1,64,53,604/- are capital in nature and could not be claimed as revenue expenditure. Further, the AO observed that the assessee has not carried o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction.] It is seen that the amount of interest claimed by the appellant is in respect of capital borrowed for the purpose of business or profession carried out by the appellant company during the year. The capital borrowed has not been utilized for acquisition of any asset or for extension of any business or profession, therefore, the interest paid on the capital borrowed for business purposes has to be an allowable business expenditure. The same cannot be denied. It is very specifically mentioned in the objects of the MOU that appellant company is to make strategic investment in the business entities. In follow up that object during the F.Y. 2006-07 it has made strategic investment of ₹ 57,80,03,400/- in Bharti AXA Insurance Co. Ltd. Therefore, the interest expenditure incurred by the appellant company is for business purposes of the appellant company. This fact has been acknowledged by the Assessing Officer himself in the assessment order wherein he has stated that appellant has parked its investible funds in the equity share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not operated only for investing in the shares of subsidiary company and the fact that it was also used for investment in the shares of the sister/ subsidiary company to have control over that company and, therefore, the element of interest paid on the overdraft was not susceptible of bifurcation and, therefore, the assessee was entitled to the deduction under section 36(1)(iii). [Para 11] Thus, the Tribunal was right in deleting the addition of ₹ 19,73,333. [Para 12] SRISHTI SECURITIES (P.) LTD. V. JOINT COMMISSIONER OF INCOME-TAX, SPL. RANGE 39 [2005] 148 TAXMAN 49 (MUM.) (MAG.) I. Section 36(1)(iii) of the Income-tax Act, 1961 - Interest on borrowed capital - Assessment year 1997-98 - Whether if 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 purpose of controlling interest in other companies, interest paid on such borrowed funds will be deductible under section 36(1)(iii) - Held, yes II. Section 28(i) of the Income-tax Act, 1961 - Business loss/deductions - Allowable as - Assessment year 1997-98 - Assessee claimed loss on account of valuation of stock of certain shares v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contended that the shares were acquired for investment originally and were later converted into stock-in-trade. Held-II The revenue authorities had not properly examined the issue. Therefore, the issue was restored back to the Assessing Officer with the direction that the assessee s claim that investments were converted into stock-in-trade with reference to the entries made in the books of account of the relevant year in which the alleged conversion took place might be verified. In the result, for statistical purposes, the assessee's appeal was to be allowed. The facts of the above cited judicial pronouncements are identical with the facts of the appellant's case, therefore, the ratio of the said judgment is squarely applicable with to the appellant's case. Therefore, the Assessing Officer was not justified in treating the interest payment on loan taken for business purposes as capital expenditure. Hence, the same is deleted. 5. Being aggrieved, the revenue is in appeal before us. 6. The ld. DR relied on the order of the AO. He submitted that in view of the nature of the investment, the apparent purpose of strategic control and close nexus between th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e submitted that the very business of the assessee is that of making strategic investments for which the assessee has borrowed money and paid interest thereon. Thus, there can be no doubt that the expense incurred by the assessee by way of payment of interest on such unsecured loan is a business expenditure and allowable as deduction u/s 36(1)(iii) of the Act. The ld. AR, in order to substantiate its claim, further relied on the decision of CIT vs. Phil Corporation Limited (2014) 14 Taxmann.Com 58 (Bom.) wherein the Hon ble Court has held as under :- We find that the reasoning of the ITAT that the overdraft was not operated only for investing in the shares of subsidiary company and the fact that it was also used for investment in the shares of the subsidiary company to have control over that company and, therefore, the element of interest paid on the overdraft was not susceptible of bifurcation and therefore, the respondent no.1 is entitled to the deduction under Section 36(1)(iii) of the Income-tax Act is correct and deserves to be accepted. He further relied on the decision of Srishti Securities (P.) Ltd. vs. JCIT 2005- (148)-Taxman-0049-TBOM. Ld. AR submitted that on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment in the business entities and accordingly, it has made strategic investment of ₹ 57,80,03,400/- in Bharti AXA Insurance Co. Ltd. Therefore, we find that the interest expenditure incurred by the assessee is for business purposes. And also, this fact is acknowledged by the AO himself in the assessment order wherein he has stated that assessee has parked its investible funds in the equity shares of a closely associated concern . Hence, we find that there was no basis for treating the interest expenditure claimed by the assessee as capital expenditure. 8.1 Our above view is also fortified by the decision of Commissioner of Income-tax, Panaji Goa v. Phil Corpn. Ltd. [2011] 14 taxmann.com 58 (Bom.) wherein the Hon ble High Court held that, The reasoning of the Tribunal that the overdraft was not operated only for investing in the shares of subsidiary company and the fact that it was also used for investment in the shares of the sister/ subsidiary company to have control over that company and, therefore, the element of interest paid on the overdraft was not susceptible of bifurcation and, therefore, the assessee was entitled to the deduction under section 36(1)(iii). Furth ..... X X X X Extracts X X X X X X X X Extracts X X X X
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