9911796707
TMI Blog1995 (10) TMI 66X X X X Extracts X X X X X X X X Extracts X X X X ..... he case made out in the ground of appeal before him as also in the assessee's letter dated 5-6-1991 addressed to the ITO Ward 15(1), Calcutta, of which a copy was filed before the Ld. CIT(A) as forming part of the memo of appeal. (4) The Ld. CIT(Appeals) erred in observing that the case of the assessee was distinguishable from the facts of the case in CIT v. Rajendra Prasad Moody [1978] 115 ITR 519 (SC). " 2. On examination of accounts the Assessing Officer (AO) found that M/s. Mangalchand Rolling Mills (P.) Ltd. was floated by the assessee and his family members and to accommodate funds for the private limited company (in short 'PLC') the assessee raised loans from various parties and invested them with the company. He also found that the advance paid by the assessee to that company was neutralised by allotment of shares and the balance amount was shown as advance to the company. He further observed that the company did not start its manufacturing process for a long period and the assessee had to repay the loans by withdrawing his capital balance from the firms in which he is partner. Subsequently, the assessee raised further loan to make goods the amount which was withdrawn b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ultimate objective was to earn dividends from the shares in the said PLC. He was, therefore, of the opinion that there was no nexus whatsoever between the income of the assessee earned under the head " Other sources" and the subscription to the shares of the newly floated PLC. He, therefore, concluded that the interest on borrowed money is also not allowable under section 57(iii) of the Act. Being aggrieved by the order of the CIT(A) the assessee has preferred this appeal to the Tribunal. 4. The learned counsel for the assessee Sri S. K. Tulsiyan filed a paper book containing 67 pages and submitted that the assessee derives share income from four firms and also income from interest and remuneration as it is evident from computation of income placed at page-7 of the paper book. He also invited our attention to the Balance Sheet placed at page-5 of the paper book and stated that the interest of Rs. 1,16,910 was paid on total borrowings of Rs. 7.26 lakhs which have been invested in the purchase of shares. The learned counsel for the assessee also clarified that these shares were not acquired or purchased during this year rather these shares were purchased in 1981 as it is evident fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed reliance on the decision of the Gujarat High Court in the case of H. K. (Investment) Co. (P.) Ltd v. CIT [1995] 211 ITR 511. 6. We have carefully considered the rival contentions, the relevant facts and material placed on the record and have also gone through the decisions on which reliance is placed by both the parties. We find that the AO appears to have been confused about and misguided by the facts of borrowing of loans, repayment of loans, withdrawals from the firms and again borrowing from the parties and replenishing the capital in the firms. etc. In view of this misunderstanding and confusion the AO has reached and arrived at factually and legally wrong conclusions which, in our opinion, are as under : (i) Although loans were not raised for investing the same in the firms, the assessee is adjusting the interest payment on loans against the profit of the firms. (ii) That payment of interest is not in any way connected with the earnings of the assessee. (iii) The interest payment is disallowed under section 37 as the deduction for payment of interest is claimed from income from registered firms. 7. Contrary to the above, we find that it is neither the claim o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has claimed interest every year right from the assessment years 1981-82 to 1987-88 and it has been allowed by the department. It is not only allowed in the past but has also been allowed subsequently in the assessment year 1992-93 on the direction of the Commissioner under section 264. What is important is the observation made by the Commissioner in his order under section 264, the relevant portion of which is extracted as under : " Hence, all these withdrawals and borrowings were a chain reaction of the initial borrowing to start a private limited company. The interests paid on loans was therefore directly connected to the original loans taken. That the private limited company could not generate income does not mean that the loans were not taken for business purpose, and that the interest on loans were not expenditure wholly and exclusively for the purpose of making or earning income. The case decided by the Hon'ble Supreme Court as quoted by the A/R is similar to the case of the assessee and, hence, respectfully relying on this case, I direct the Assessing Officer to allow the interest on loans claimed by the assessee as deduction under section 57(iii). " Thus, we o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowing an expenditure under section 12(2) of the Act it is not necessary that investment should result in profit but there must be some gross income or return. " Likewise, the purpose and the motive of acquiring such shares is also not important factor to disallow the interest. In the case of CIT v. Model Mfg. Co. (P.) Ltd. [1980] 122 ITR 767 the Hon'ble Calcutta High Court has held that though the ultimate or ulterior motive of the assessee might have been to confer controlling interest either to itself or to MK TK, the immediate purpose for acquisition of the shares was to earn income from the dividends thereof and the Tribunal was, therefore, right in holding that the interest was deductible under section 57 against its income from other sources. The Hon'ble High Court also held that the word " purpose " in section 57 cannot mean the motive of a transaction ; much less can it mean the ulterior motive or ulterior object of the transaction. Then in the case of Rajendra Prasad Moody, the Hon'ble Supreme Court interpreted that the plain natural construction of the language of section 57(iii) of the Act irresistibly leads to the conclusion that to bring a case within that sect ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
