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TMI Blog1994 (10) TMI 86X X X X Extracts X X X X X X X X Extracts X X X X ..... business of underwriting, to subscribe, acquire, take up and hold shares, stocks, debentures and securities issued by any company carrying on business in India or in any foreign company. Thus it can be seen from the objects clause of the company that selling of shares was not one of the objects for which the company was formed. The company carried on activities of soliciting, assignments for management consultancy and financial consultancy. The company's directors were qualified persons, who have vast experience in the field of industrial management. In the accounting year in question the assessee-company made Investments into shares and other securities of various private/public limited companies. The company purchased shares worth Rs. 8,13,960 as on 31-12-1986. The company borrowed funds by way of loans for making investment in shares. The total borrowings from M/s Patel Holdings P. Ltd. and M/s. Guru Holdings P. Ltd. together with accrued interest as on 31-12-1986 was Rs. 8,91,957.26. From the balance sheet one can know that the total borrowings from M/s. Patel Holdings P. Ltd. were on various dates whereas from M/s. Guru Holdings P. Ltd. the whole amount was borrowed only once. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew my attention to India Cements Ltd. v. CIT [1966] 60 ITR 52 (SC) for the proposition that though moneys were borrowed for purpose of investment in shares, it should be held to be business expenditure and it is to be allowed. It is quite irrelevant to consider the object with which the loan was obtained. So also on the strength of the Bombay High Court decision in the case of Premier Automobiles Ltd. v. CIT [1971] 80 ITR 415, it is contended that the act of borrowing money is incidental to the carrying on of the business. The loan obtained is not an asset or advantage of an enduring nature and the expenditure is incurred for securing the use of money for a certain period and it is irrelevant to consider the object with which the loan is obtained. In a more direct decision rendered by the Hon'ble Supreme Court in Rajendra Prasad Moody's case it was held by the Hon'ble Supreme Court that where the assessee borrowed monies for the purpose of making investment in certain shares and paid interest thereon during the accounting period relevant to the assessment year but did not receive any dividend on the shares purchased with those monies, the interest on moneys borrowed for investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that contention and held that the Tribunal was not right in holding that the income arising out of the share investment made by the assessee should be held to be income from business. The Hon'ble High Court felt that according to law it should be charged only under the head ' Other sources '. Then it had taken up the issue to provide answer to the second question, which was referred to above. After elaborate discussion, the Hon'ble High Court held that according to the general principles the expenditure incurred for earning income falling under a particular head should be deducted only under that head. But this general principle has to be read subject to the special provisions contained in clause (iii) of section 36(1) as regards deduction of interest. Section 36(1)(iii) then was quoted, which is as under : " 36(1). The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28 ... (iii) the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession. " Their Lordships held that this being a special provision regarding deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. 5. All the above discussion would clearly show that the interest payable on amounts borrowed for purpose of investment in shares is allowable under section 36(1)(iii) since the shares themselves were purchased as part of investment in this case and the investment as well as deriving dividend income from the shares was also a part of the business of the assessee-company. However, the question is whether the loss sustained would also become business loss. In my understanding of section 72 it is not simply enough if the shares were purchased as a measure of investment and purchasing of shares also is for purposes of business in the broad sense of the term. A reading of section 72(1) would show that the loss should be sustained under the head ' Profits and gains of business ' and no other head. Section 72(1) is as follows : " Where for any assessment year, the net result of the computation under the head " Profits and gains of business or profession " is a loss to the assessee, not being a loss sustained in a speculation business, and such loss cannot be or is not wholly set off against income under any head of income in accordance with the provisions of section 71, so much of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered as Income under the head ' Other sources '. For that simple reason section 72(1) does not come into operation. In the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC) at page 97, the following view of the Indian Transfomers Ltd. v. CIT [1972] 86 ITR 192 (Ker.) (Indian Transformer's case) approvedly quoted as under : ' It is not possible to accept the view that section 72 has no bearing on, or is unconnected with, the computation of the total income of an assessee under the head ' Profits and gains of business or profession '. Actualy section 72(1) provides that where the net result of computation under the head ' Profits and gains of business or profession ' is a loss and such loss cannot be or is not wholly set off against the income under any head of income in accordance with the provisions of section 71, so much of the loss as has not been so set off, subject to the other provisions of the Chapter, shall be carried forward to the following assessment year and shall be set off against the profits and gains, if any, of any business or profession for that assessment year. Therefore, section 72(1) has a direct impact upon the computation under ..... X X X X Extracts X X X X X X X X Extracts X X X X
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