COMMISSIONER OF INCOME TAX Vs. AMRITABEN R SHAH

JUDGEMENT

(1.) BY this reference under S. 256(1) of the IT Act, 1961, the Tribunal has referred the following question of law to this Court for opinion at the instance of the Revenue :

(2.) THE assessee had purchased shares in Raval Tiles and Marbles (P) Ltd. for Rs. 2.07 lakhs at par after January, 1972. Her husband also purchased shares in the said company during the same period at par of face value of Rs. 1,77,500 and her father -in -law, Korshi Hirji Shah, purchased shares during the same period of Rs. 34,500. Thus the entire shareholding of Rs. 4.19 lakhs in the said company was purchased by the assessee, her husband and her father -in -law in a couple of months after January, 1972. In her assessment for the asst. yrs. 1976 -77, 1977 -78 and 1978 -79, the assessee claimed deduction under S. 57(iii) of the IT Act, 1961 ("the Act"), of the interest paid by her on the loan obtained for acquiring the shares in the above company. The ITO disallowed the claim of the assessee as, according to him, the loan taken by the assessee for the purpose of shares was for the purpose of acquiring controlling interest in the company. He was, therefore, of the opinion that in such a situation, the interest on money borrowed for purchasing shares was not allowable as a deduction under S. 57(iii) of the Act. The assessee appealed to the AAC. The AAC held that the assessee, her husband and her father -in -law, who were not having any interest in the said company before January, 1972, had purchased the entire share capital thereof after January, 1972, within a couple of months. He further observed that it was clear that the loan was taken by the assessee for purchasing shares in the above company with a view to acquiring controlling interest therein and hence the interest paid thereon was not allowable as a deduction under S. 57 (iii) of the Act. The assessee appealed to the Tribunal. Before the Tribunal, it was contended on behalf of the assessee that though the ultimate motive of the assessee might have been to obtain controlling interest in the company, the immediate purpose of acquisition of shares was to earn income from dividends. The Tribunal accepted the above contention of the assessee and held that the interest paid by the assessee in the above three assessment years was allowable as deduction under S. 57(iii) of the Act. Hence, this reference at the instance of the Revenue.

(3.) WE have carefully considered the above submissions. Sec. 75 sets out the deductions which are permissible in the computation of the income chargeable under the head "Income from other sources". Clause (iii) of S. 57 provide that in computing income under the head "Income from other sources" deduction is to be made in respect of expenditure incurred wholly and exclusively for making or earning such income provided the expenditure is not in the nature of capital expenditure. Sec. 57(iii) of the Act, so far as relevant, as it stood at the material time, stood as below :