Deductibility of interest on funds borrowed for acquiring controlling interest

This article summarizes a recent ruling of the Mumbai Income Tax Appellate Tribunal (ITAT) in the case of Panatone Finvest Ltd.(Taxpayer) [2009-TIOL-717-ITAT-MUM].  The Taxpayer incurred interest expenditure on the funds borrowed for investing in shares of a company, with a view to acquire controlling interest. The ITAT held that the interest expenditure incurred is not allowable under Section 57(iii) (Section) of the Indian Tax Law (ITL), since it is not incurred ‘wholly and exclusively’ for the purpose of earning dividend income.

Background and facts of the case

1. The Section provides for deduction of revenue expenditure laid out or expended ‘wholly and exclusively’, for the purpose of making or earning income assessable under the head ‘Income from other sources’.
2. The Taxpayer is a Tata Group company, engaged in the business of investment and finance.

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