9911796707
TMI Blog1987 (10) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... lacs consisting of 40,000 equity shares of Rs. 10 each and 11 per cent 1000 preferential shares of Rs. 100 each. S/Sri Banwari Lal S/o Sri Brij Mohanlal Kanoria and Devi Prasad Tibrewal S/o Sri Mohadeo Lal became the only subscribers by purchasing fully paid up 250 equity shares each thus making the issued, subscribed and paid up capital of the company at Rs. 5,000 only. 3. The main object of this company seems to be to make its own contribution to the agricultural economy of the country by providing agricultural production and encouraging such other enterprises as were incidental or ancillary to such objects. This is what the Memorandum of Association declares with regard to the main objects in clause (A) : "1. To purchase, take by gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to have started its income-earning activities on two fronts. On the first, it started acquiring agricultural land to produce agricultural income. On the second, it started dealing and trading in shares, debentures, stock, etc. The first was started in the direction of attainment of its 'Main Objects', as mentioned in clauses 1 to 3 above, and the second appears to have been started in the direction of the attainment of its objects incidental or ancillary to main objects as detailed in clauses 4 6 (acquisition and holding of shares, etc., and investment of surplus moneys in the acquisition and holding of the shares, debentures, etc., respectively). 5. Towards the attainment of the above objects the company obtained unsecured loans amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding in shares' and the interest paid on borrowings taken for acquiring an asset was allowable and the interest payment of Rs. 1,74,038 must have been allowed as business expenditure, yet the argument advanced before the CIT(A) was that the asset to be acquired with the borrowed moneys might be agricultural land but in the hands of the company it would be stock-in-trade for the reason that the assessee-company was a dealer in land and, therefore, interest paid on loans obtained to acquire stock-in-trade should be allowed as business deduction. The CIT(A) appears to have accepted the contention that as a dealer of land, agricultural land for which advanced was made was stock-in-trade. But he upheld the disallowance of interest on the grounds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to advance money for acquiring stock-in-trade. That possession over the land has been given is not material since the assessee is not in a position to use the land in any way and since the vendors are close relatives of the directors of the company. I am therefore of the opinion that the company has not commenced its business of buying and selling of immovable property. Therefore, revenue expenditure incurred prior to commencement of business cannot be allowed as a deduction in computing income." 8. Mr. H. M. Talati, Advocate, appearing for the company vehemently urged that once the learned CIT(A) had accepted the position that the company was a dealer in land and borrowings were utilised for purchase of agricultural land which was to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough on varying grounds. 10. As stated above, after having incorporated itself on 13-5-1981 with the declared objective of promoting and carrying on agricultural income-producing activities the company has started its income-earning activities in two different directions, viz., acquiring agricultural land for producing agricultural income and dealing and trading in shares for producing business income. In this appeal we are concerned with its former type of activity and would reserve our opinion with regard to the latter for the obvious reason that interest payment of Rs. 1,74,038 has been claimed to have been incurred for borrowings utilised for acquiring a capital asset in the form of agricultural land. 11. By virtue of clauses 1 to 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have obtained the necessary permission from the authorities concerned, the vendors appear to have made no efforts in that direction and the company does not appear to have ever insisted or stressed for the performance of the contract. With remotest chances of a registered sale-deed being executed by the vendors in its favour, even after paying an earnest money of Rs. 5,000 to the vendors the company chose to pay the balance of Rs. 9,11,000 only for its own disadvantage. The argument that the company had obtained possession of the to-be-sold land does not convince us as title in and right to an immovable property worth Rs. 100 or more in value, can only be created by a registered sale-deed. And without acquiring transferable rights in the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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