Law:

Section:

Section 36(1)(iii) of the Income-tax Act, 1961 - Interest on borrowed capital - Assessment year 1996-97 - Assessee-company was carrying on business of sale/purchase of shares - During relevant assessment year, assessee had borrowed funds for investment in shares of 'N' Ltd. - Assessing Officer disallowed interest paid on borrowed funds on ground that assessee had invested in shares of 'N' Ltd. for acquiring controlling rights and, therefore, interest expenditure was in nature of capital expenditure - On appeal, Commissioner (Appeals) as well as Tribunal deleted disallowance of interest - Whether since Commissioner (Appeals) as well as Tribunal found that shares were purchased not for acquiring controlling rights in another company, impugned order passed by said authorities did not require any interference - Held, yes Manish R. Bhatt for the Appellant. JUDGMENT 1. Heard learned counsel for the appellant. 2. The following substantial question of law is proposed for admission of these appeals : "Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by the Commissioner of Income-tax (Appeals) deleting the disallowance of interest which was made by the Assessing Officer under section 36(1)(iii) on the ground that the purchase of shares was mainly for acquiring controlling rights in another company ?" 3. The Tribunal has considered the issue raised in the question as under : "5. The brief facts of the case are that the impugned sum stood disallowed out of the assessee's claim of interest at a total amount of Rs.789.58 lakhs, on account of utilization of borrowed capital for investment in the shares in Nachmo Knitex Ltd. and Ashima Syntex Ltd., as well as in the partly convertible debentures of three other companies, who, it was claimed had, in turn, invested the same in the shares in the aforesaid two companies. The Revenue's case, therefore, is one of investment in a capital asset for acquiring controlling rights, so that the resultant expenditure is a capital expenditure. The Assessing Officer (AO) made the addition following the similar disallowance made in the assessment year 1996-97, finding no difference in the facts and…

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