9911796707
TMI Blog1993 (1) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... ps, viz., Kasturbhai group and Patel group held 24,975 shares and 12,373 shares, respectively. These three groups of shareholders decided amongst themselves that, in the larger interest of SOML, the shares of SOML should be held by one of the groups. The assessee decided to take over the shares from the other shareholders so that it could hold 100% shares in SOML and implement the expansion projects of SOML. It appears that this decision was taken in September, 1967. The assessee agreed to purchase shares at the rate of Rs. 197.5 per share. Payment of price was spread over a period of two years. 10% of the price was to be paid on the date of purchase and the balance amount was to be paid in instalments ranging from 12 to 24 months with interest at 9% to be paid on the outstanding amount. The assessee met with some difficulties in acquiring 2,522 shares as there was resistance from the owners of those shares. Meanwhile, a proposal was put forward by Karamchand Premchand Pvt Ltd. (hereinafter referred to as "KPPL") to purchase all the shares of SOML. Pursuant to that proposal, the assessee sold 46,454 equity shares of SOML to KPPL on April 15, 1968, at the same purchase price, viz., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st arose because the assessee was unable to make payment of the full purchase price at the time of purchasing the shares. The Tribunal rejected the claim made under section 36 as it found that the assessee was already the managing agent of SOML and purchase of the shares had nothing to do with the managing agency. But, as regards the claim for deduction made under section 57(iii), the Tribunal held that, for the assessment year 1968-69, its claim was well-founded as it had derived dividend income ; however, the assessee's claim for a similar deduction for the assessment year 1969-70 was not tenable as the assessee had not received any dividend during that year and, secondly, because the obligation of the assessee to make payment of interest to the shareholders of SOML was independent of the right to receive interest from KPPL and, therefore, it was not possible to say that payment of interest was required to be made by it to the shareholders of SOML in order to earn or derive income by way of interest from KPPL. The Tribunal, therefore, dismissed the appeal. Mr. K. C. Patel, learned counsel appearing for the assessee, at the outset stated that he was not pressing the claim for de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icularly relied upon proposition No. 3 which is to the effect that the expenditure must have been laid out or expended wholly and exclusively for the purpose of making or earning "income from other sources", and submitted that the expression " such income" would, therefore, mean income from other sources and need not be confined to a particular type of income for which the expenditure was incurred. He then drew our attention to another decision of this court in Padmavati Jaykrishna v. CIT [1981] 131 ITR 653, wherein, after referring to the decision of the Supreme Court in Seth R. Dalmia v. CIT [1977] 110 ITR 644, it has been held that the connection between the expenditure and the earning of income need not be direct. He also relied upon another decision of this court in CIT v. Kasturbhai Lalbhai [1968] 70 ITR 267, wherein it has been held that, if, on the ground of commercial expediency and in order to indirectly facilitate the earning of income, expenditure is incurred, then it is an allowable deduction under section 12(2) of the Indian Income-tax Act, 1922. He also relied upon the decision of the Supreme Court in T. S. Krishna v. CIT [1973] 87 ITR 429, wherein, while dealing wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso for another purpose or, in other words, the purpose of making or earning the income is mixed up with another purpose in making of the expenditure ... the expenditure would be outside the scope and ambit of section 12(2) and would not be a permissible deduction under that section. The expenditure in order to fall within section 12(2) must, therefore, be incurred solely for the purpose of making or earning the income sought to be assessed . . ." Again, in Smt. Virmati Ramkrishna's case [1981] 131 ITR 659 (Guj), this court, after considering the case law on the point, has stated the propositions which follow therefrom. One of the propositions so stated is that the purpose of making or earning such income must be the sole purpose for which the expenditure must have been incurred, that is to say, the expenditure should not have been incurred for such purpose as also for another purpose, or for a mixed purpose. Another proposition which is stated therein is that the distinction between purpose and motive must always be borne in mind, for, what is relevant is the manifest and immediate purpose and not the motive or personal considerations weighing in the mind of the assessee for inc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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