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TMI Blog2009 (8) TMI 93X X X X Extracts X X X X X X X X Extracts X X X X ..... JJ. K. V. Aravind for M. V. Seshachala for the appellants. S. Parthasarathi and Mallaha Rao for the respondent. JUDGMENT The judgment of the court was delivered by D. V. SHYLENDRA KUMAR J.— Appeal under section 260A of the Income-tax Act, 1961 (for short, "the Act") by the Revenue against the order of the Income-tax Appellate Tribunal, Bangalore Bench, posing for answer the following substantial questions of law: "(a) Whether the Tribunal was correct in holding that the loss incurred by the assessee in the sale of shares held by it of M/s. ICDS Limited is an allowable deduction despite the same having been incurred due to a personal settlement entered into by some of the directors of the assessee-company with that of other members of the Manipal group of companies and there being no business interest of the assessee involved in such sale ? (b) Whether the Tribunal was correct in holding that interest payments made towards acquisition of shares of M/s. ICDS Ltd. pursuant to the awards entered into by the directors of the company with other rival factions of the Manipal Pai group would amount to an expenditure incurred during the course of business and was an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. Consequently, the Tribunal also opined that the amount of Rs. 63,85,464 paid by the assessee as interest paid on the borrowings for the purpose of investment in the assessee's business and which had been disallowed by the Assessing Officer for the reason that the transaction being not in the normal course of business, cannot be allowed as deductible expenditure incurred by the assessee for the purpose of its business should also be allowed and is required to be reversed and as such allowed the claim towards payment of interest in the computation of the overall tax liability of the assessee. It is against this order of the Tribunal recording such a finding, this appeal by the Revenue raising the substantial questions of law as referred to above. 5. We have heard Sri K. V. Aravind, learned counsel for the appellant-Revenue and Sri S. Parthasarathi, learned standing counsel for the respondent-assessee. 6. The submission of Sri Aravind, learned counsel for the appellant, is that the Tribunal has committed a grave error in concluding that the transaction of purchase and sale of 1,00,000 number of shares of M/s. ICDS Ltd. should have been treated as part of business trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. [2009] 317 ITR 253 (Karn), wherein it has been held a settlement entered into amongst the individual directors of a company cannot be held to be a settlement binding on the company and it has been further held that the company cannot be a party to a family settlement assuming that such members of the family or other shareholders or directors of the company, and on such premise would submit chat the transaction in question could have never been characterized as a transaction in the course of the business of the assessee-company or for the business requirement of the company, and if so, the Tribunal could not have concluded that it should be treated as part of the business activity of the company, just because the assessee was also in the business of trading in shares and stocks. 8. It is also submitted that when once the finding that the loss claimed by the assessee is a loss in the course of the business becomes unsustainable, then the other consequences as noticed and as found by the Tribunal particularly in the matter of allowing the interest paid on the amount said to have been borrowed for the purchase of shares as a part of the business expenditure also, automaticall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the earlier years and just because in the instant case of transaction is to be held as not a business transaction, there is no justification for disallowing the interest payment totally and at any rate such part of the borrowal attributable to the investment made for acquiring 1,00,000 number of shares in M/s. ICDS Ltd. and which even the Assessing Officer has allowed as short-term capital loss in the computation of taxable income of the assessee, and if it is to be treated as borrowal for such investment in the capital asset, the interest attributable to such borrowal should necessarily be allowed even in the computation of the capital loss of the assessee under the head "Capital gains" and in fact when the assessee intended to carry forward it as unabsorbed capital loss, whether short-term or otherwise, in terms of section 74 of the Act and this aspect of the matter having not been examined by the Tribunal independently, the question relating to payment of interest cannot be automatically answered against the assessee as a sequel to the answer to the first question in favour of the Revenue and, therefore, would urge that to the extent answer to the second question does not become ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concern, may be a company of which the shareholders were members of the same family, is nevertheless a payment which is only relatable to the award which binds the directors and not the company. It is obvious that the directors are using their position in the company to further their own needs and requirements. 16. Be that as it may, if the company is claiming to be a company carrying on business in trading shares and stocks, while any purchase in the normal course and from the market, whether the company acquires at a price, high or low, nevertheless, it constituted part of the business of the company and business transactions of the company, but an acquisition of share, at a value far higher than the market value when the shares otherwise were available at Rs. 70 per share, but paying Rs. 220 per share to purchase them only from a particular seller cannot be construed as any part of the business transaction of the assessee-company. This argument does get support from the derision referred to above and relied on by learned counsel for the appellant-Revenue. In this view of the matter, we have to necessarily answer the first question in favour of the Revenue and against the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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