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TMI Blog2017 (2) TMI 397X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 37 and is not excluded by Section 57 (3), it had to be and was correctly allowed. - Decided in favour of the assessee. - ITA Nos. 709/2004, 37/2005 & 636/2004 - - - Dated:- 19-1-2017 - MR. S. RAVINDRA BHAT MR. NAJMI WAZIRI JJ. Appellant Through: Mr. Zoheb Hossain, Sr. Standing Counsel in both appeals. Respondent Through: Mr. Shashwat Bajpai with Mr. Sharad Agarwal, Advocates. S. RAVINDRA BHAT, J.(ORAL) 1. Learned counsel for the parties submit that another appeal, i.e., ITA 636/2004 has to be heard together with these two appeals as the question of law framed is identical. 2. With consent of counsel for the parties, that appeal - ITA 636/2004 was listed and heard for final disposal along with the other ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment was finalized under Section 143 (3) for AY 1992-93 as well as later years. On 07.04.1997, during the course of regular assessment, the AO was of the opinion that the interest component should not have been allowed and, therefore, not only proceeded to bring that to tax for the concerned period/year but also issued notice for reassessment. In the reassessment proceedings, the AO disallowed the interest paid to the creditor, i.e., LIC Mutual Funds Corporation on the ground that the assessee had wrongly claimed it and that it was inadmissible by virtue of Section 57 (iii) of the Income Tax Act, 1961 (hereafter referred to as Act ). The assessee s appeals were accepted by the CIT (A) for all the years in which the reassessments were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 616 (Bom). Learned counsel further relied upon the judgment of the Supreme Court reported as Brooke Bond India Ltd. v. Commissioner of Income Tax, W.B.III, Calcutta, (1997) 10 SCC 362 as well as Punjab State Industrial Development Corpn. Ltd. v. CIT (1997) 10 SCC 184. 6. Counsel for the assessee relied upon the findings of the CIT (A) and also contended that the Revenue in effect accepted the nature of the transaction irrespective of the fact that the debentures were nominally allotted to LIC Mutual Funds - which was the rationale for allowing the capital loans reported in the year of commencement in the stream of expenditure, i.e., 1992-93. In these circumstances, for the later years, there could have been no question for differe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant company raised a normal loan from some other source to make the said investment. It is very clear that in such a case interest paid on such borrowings would have been allowable straightway as a revenue expenditure. Therefore, the allowability of the interest paid to LIC Mutual Fund cannot be disputed merely because the LIC had subscribed to the shares under a buy back agreement. In fact, by entering into such an agreement the LIC Mutual Fund has only protected its interest by subscribing to these debentures/shares instead of giving a loan to the appellant company to invest in the said debentures. Thus the substance of the contract makes it clear that the LIC Mutual Fund did not wish to advance a straight loan to the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny and the LIC Mutual Fund has also been taken into account to reach the same conclusions. 8. The Revenue s contention essentially is reflected in Amritaben R. Shah (supra) in the following submission of law by the Bombay High Court: - 3. We are supported in our opinion by the decision of the Gujarat High Court in the case of Sarabhai Sons (P.) Ltd v. CIT [1993] 201 ITR 464 . In that case, it was held that if the dominant purpose for which the expenditure was incurred was not to earn the income, the expenditure incurred in that behalf would fall outside the purview of Section 57(iii) of the Act. We are also supported in our above conclusion by the decision of this court in Chinai and Co. Pvt. Ltd. v. CIT [1994] 206 ITR 616. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the head Income from other sources . That is not so under Section 37 which allows deduction of expenditure incurred wholly and exclusively for the purposes of the business . Under Section 57(iii), deduction will not be allowed if the expenditure is not incurred for the purpose of earning income falling under the head Income from other sources . 9. The other case cited by the Revenue is Sarabhai Sons (P.) Ltd. v. Commissioner of Income Tax, (1993) 201 ITR 464 (Guj), where too identical reasoning was applied. This Court is of the opinion that the Revenue s argument is fallacious. First and foremost the acceptance of the assessee s contentions that it suffered a capital loss in the first year, i.e., 1992-93 has gone uncontest ..... X X X X Extracts X X X X X X X X Extracts X X X X
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