JAYANT PATEL AND S.H. VORA, JJ.

JUDGMENT

S.H.Vora, J. - Since both the appeals arising out of common substantial question of law, they are heard together and disposed of by this common judgment.

1.1 Since both the appeals involve same and identical facts and law except to the extent of the amount and assessment year, they are decided together by taking into consideration facts of Tax Appeal No.156 of 2001 as base in the matter.

2. The Assessee - Atir Textiles Industries Pvt. Ltd. is in the present appeal against the judgment dated 19.03.2001 passed by the Income Tax Appellate Tribunal, Ahmedabad (for short, the 'Tribunal') whereby, the Tribunal upheld dis-allowance of interest amounting to Rs.19,50,000/- claimed as deduction of interest under Section 57(iii) of the Income Tax Act, 1961 (for short, the 'Act'). Hence, the appellant - Assessee is before this Court by way of appeal under Section 260A of the Act raising following substantial question of law in appeal for our consideration:—
"(a) Whether the Tribunal was right in law in disallowing the interest of Rs.19.50 lacs under Section 57(iii) of the Income Tax Act, 1961?"

3. Before we answer the substantial question of law framed in the present matters, it is relevant to take note of certain factual background leading to the present appeals.

3.1 The appellant - Assessee borrowed Rs.3 crores from Arvind Mills Ltd. at the rate of 18.5% p.a. and invested the said amount in Optionally Convertible Debentures (for short, 'OCDs') at the rate of 12% p.a. till the said OCDs are converted into shares. The appellant - Assessee filed its return of income for the Assessment Year 1995-1996 on 30.03.1996 thereby declaring total income at Rs.NIL. The return so filed was processed under Section 143(1)(a) of the Act on 23.08.1996. During the year under consideration, the appellant - Assessee shown business income being Commission and Service charges as per Profit and Loss account at Rs.19,51,590/- and after deducting expenses thereof, the balance amount was shown as income. Further, the appellant - Assessee claimed Rs.19,50,000/-, which was excess interest paid over interest received during Assessment Year 1995-1996. In response to the notice, the appellant - Assessee submitted required details. The main thrust of the reply is such that the book value of equity shares on conversion of OCDs would be quite attractive as estimated book value of the equity shares of four companies, namely, Abundance Investments Ltd., Acon Investments Ltd., Active Investments Ltd. and Ajax Investments Ltd. wherein, amount of Rs.7.50 lacs in each company were invested at the rate of 12% than carried the following estimated book value of equity shares on conversion of debentures:—

Sr.No.	Name of the company	Estimated book value of equity shares on conversion of debentures
1.	Abundance Investments Ltd.	442
2.	Acon Investments Ltd.	194
3.	Active Investments Ltd.	222
4.	Ajax Investments Ltd.	250

3.2 Similarly, the assessee claimed allowance of interest of Rs.14,17,810/- from interest of Rs.37,29,556/- which excess interest paid over interest received during the Assessment Year 1996-1997.
3.3 While processing the return and considering the reply of the appellant - Assessee, the Assessing Officer inquired into the claim of loss due to difference in interest paid and earned in view of the provisions contained in Section 57(iii) of the Act. While holding against the assessee, the Assessing Officer noticed that (i) the terms and conditions of 12% OCDs issued by all above four companies are exactly same and the appellant - Assessee did not have any option regarding conversion of such debentures until expiry of 7 years from the date of allotment though the appellant - Assessee submitted estimated book value of equity shares of the said investment companies but it was not found as a material fact in the circumstances of the case as the debentures had already been redeemed during the immediately succeeding financial year i.e. Financial Year 1995-96 (ii) there was a planning involved at the time of issue of the said debentures and such planning becomes evident from the fact that total income from business of the appellant - Assessee was Rs.19.50 lacs and difference of amount of interest paid and earning was also Rs.19.50 lacs. In nutshell, it was noticed by the Assessing Officer that the amount was borrowed from one party at a particular rate of interest and lent to another party at a lower rate of interest and, therefore, the Assessing Officer, after considering the case of Smt. Padmavati Jai Krishna v. CIT [1981] 131 ITR 653/5 Taxman 292 (Guj.) and also case of Smt. Virmati Ram Krishna v. CIT [1981] 131 I.T.R. 659 (Guj.) upheld in Smt. Padmavati Jai Krishna v. Addl. CIT [1987] 166 ITR 176/32 Taxman 32I (SC), held that amount to be allowable under Section 57(iii) of the Act was not wholly and exclusively spent towards earning of income and as the appellant - Assessee, as per the Assessing Officer, failed to establish the said fact, claim of allowability of interest of Rs.19.50 lacs was disallowed and was added back to the total income of the appellant - Assessee.

3.4 The appellant - Assessee carried the matter in appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax, vide order dated 01.07.1999, while upholding the decision of the Assessing Officer, observed in para 5 as under:—

"5. I have gone through the issue involved and the rival versions given. After going through the same it is felt that in this case the assessee company is simply borrowed funds at a higher rate of interest and has advanced the said funds to another interested company at lower rates. The claim of interest paid has necessarily to be examined with reference to the fact as to whether the expenses have been incurred squarely for earning of the income against which deduction has been claimed. In the case of the assessee company this fact has not been established. The Supreme Court has held that the test to apply is that the expenditure should be wholly and exclusively for the purpose of earning the income. In this case from the facts itself one can see that the assessee does not pass in this test since the expenditure is not wholly and exclusively for the purpose of earning the income. There is a clear cut case where the funds have been borrowed at a higher rate of interest and have been advanced to another interested company at lower rates. In view of the facts of this case, action of the Assessing Officer seems fully justified and the same is accordingly confirmed."

3.5 The said decision of the Commissioner of Income Tax (Appeals) was further carried in appeal by the appellant - Assessee before the Tribunal. The Tribunal, while dismissing the appeal of the appellant - Assessee, observed in paras 7 and 8 as under:—

"7.Having heard both the sides, we have carefully gone through the orders of authorities below. Rival submissions were also considered. In order to decide whether an expenditure is permissible deduction u/s.57(iii) of the I.T. Act, the nature of expenditure needs examination. In this case the assessee incurred a loss of Rs.19,50,000/- by borrowing Rs.3 crores at 18.5% from Arvind Mills (a company of Lalbhai group) and invested the same in four companies of Lalbhai Group at the rate of 12%. The statutory language of Sec.57(iii) provides that the expenditure (not being capital expenditure) must laid out or expended wholly and exclusively for the purpose of making or earning such income. Such income in the case before us mean interest earned Rs.36 lacs (interest at 12% on 3 crores). From this income assessee claimed expenditure on account of interest amounting to Rs.55,50,000/- being interest at the rate of 18.5% on 3 crores. Section 57(iii) contains the word 'purpose'. According to learned counsel of the assessee, the assessee decided to incur annual loss of Rs.19,50,000/- for seven years, to avail option of conversion of each debenture into equity share. After carefully going through the terms and conditions for issuance of debentures by four companies, we are satisfied that option provided is illusory because all the four companies vide condition (f) retain the right to buy back/redeem the debenture. Admittedly in this case debentures by all the four companies were redeemed on 21.10.1995 and 2.1.96. The Assessing Officer applied the judgment of the jurisdictional High Court in the case of Padmavati Jai Krishna v. CIT [1981] 131 ITR 653(Guj.) and in the case of Smt. Virmati Ram Krishna v. CIT [1981] 131 ITR 659 (Guj.) affirmed by the Apex Court in Smt. Padmavati JaiKrishna v. Addl. CIT [1987] 166 ITR 176 disallowed the interest to the extent of Rs.19,50,000/-. This represent the difference of interest paid and charged by the assessee. In order to allow the expenditure u/s.57(iii) assessee must have incurred the expenditure for the purpose of earning the income. From the facts of the case, it is apparent that the assessee company has simply borrowed funds at a higher rate and has advanced the same to another interested company at a lower rate. Keeping in view the ratio of the judgment of the Apex Court in the case of Smt. Padmavati JaiKrishna v. Addl. CIT [1987] 166 ITR 176 (SC), in our opinion, the assessee is entitled to deduction of Rs.36 lacs only u/s.57(iii) of the I.T. Act. In this context, we may mention that assessee is not entitled deduction of entire amount of interest paid because debentures are not shares. In case of shares, assessee is entitled to dividend whereas in case of debenture assessee is entitled to fix rate of interest. In case of debenture, a debenture holder is entitled to fix rate of interest whereas price of share depends on various factors like dividend declared, profitability of the company etc. In the present case, assessee is entitled to only fixed rate of interest and discretion to allow option to the assessee company, solely depend upon discretion of the four companies who issued the debenture. For this reason we have no hesitation in holding that though it may be said that shares are securities but debentures by no stretch of imagination be called shares. Hence the decision of Apex Court in the case of Rajendra Prasad Moody (supra) is not applicable in case of interest earned on debentures.

8. As regards the contention of the assessee that no tax planning is involved, we find that Arvind Mills is a company of Lalbhai Group and four companies are also of Lalbhai Group. By subscribing to debenture assessee company decided to incur yearly loss of Rs.19,50,000/-. This would mean that assessee is not required to pay any tax on business income to the extent of Rs.19,50,000/- for 7 years. Four companies of Lalbhai Group get the loan of Rs.3 crores at a rate of interest which is lower than market rate. Though the assessee is denying that it is not a company of Lalbhai Group but looking to the entirety of the facts and circumstances of the case, we are satisfied that assessee company has adopted a device which has clearly resulted in tax planning. Therefore, judgment of Apex Court in the case of Mc Dowell Co.Ltd. v. CTO [1985] 154 ITR 148 is squarely applicable to the facts of the case."

4. Learned advocate Mr.J.P. Shah for the appellant - Assessee vehemently contended that the Tribunal has committed a grave error in disallowing interest of Rs.19.50 lacs from interest of 55.50 lacs which the appellant - Assessee paid on the borrowing made by it and invested into the OCDs of the said four companies which yielded interest of Rs.36 lacs. It is vehemently argued by him that the Tribunal failed to appreciate that the said borrowing was made not only to earn 12% interest but also to get the shares of the said four companies which would yield good dividend and capital appreciation in future. It was further submitted that the Tribunal has erred in distinguishing the judgment of the Hon'ble Apex Court rendered in the case of CIT v. Rajendra Prasad Moody [1978] 115 ITR 519 by merely pointing out that the debentures are not shares forgetting that in case of Rajendra Prasad Moody (supra), there was no dividend income at all whereas, in the case of appellant - Assessee, there was earning of 12% rate of interest apart from getting shares in future which would yield not only dividend but also capital appreciation. Learned advocate Mr.J.P. Shah, after referring to the decision of Punjab and Haryana High Court rendered in the case of CIT v. Pankaj Munjal Family Trust [2010] 326 ITR 286, contended that merely because the appellant - Assessee borrowed amount at the rate of 18.5% p.a. for investing in 12% OCDs, it cannot be inferred that the said transaction was colourable because no person with ordinary prudence would borrow money at 18.5% and invest the same at lower rate of interest i.e. 12%. Relying upon the said decision, learned advocate Mr.J.P. Shah submitted that the appellant - Assessee has not adopted any dubious method because it has paid interest on the borrowed amount and it is not the case of the Revenue that no such rate of interest was prevalent in the market during the Assessment Year under consideration.

5. Learned advocate Mr.J.P. Shah also placed reliance upon the decision of Punjab and Haryana High Court rendered in the case of CIT v. Rockman Cycle Industries (P.) Ltd. [2011] 331 ITR 401/203 Taxman 302/15 taxmann.com 306 to contend that the taxing authorities are entitled to determine true and legal relations resulting from transaction but while doing so, the transaction under consideration must be looked at from the view point of prudent businessman. The exercise of jurisdiction cannot be stretched to hold a roving enquiry or deep probe. In this connection, learned advocate Mr.Shah also placed reliance upon the decision of the Hon'ble Apex Court rendered in the case of Vodafone International Holdings B.V. v. Union of India [2012] 341 ITR 1/204 Taxman 408/17 taxmann.com 202 (SC) to contend that the transaction must be looked as a whole and not dissected. Learned advocate Mr.Shah also placed reliance upon the decision of this Court rendered in the case of CIT v. Special Prints Ltd. [2013] 356 ITR 404/215 Taxmn 628/33 taxmann.com 463 (Guj.) so as to contend that once the transaction is genuine merely because it has been entered into with a view to avoid tax, it would not become colourable device, earning any disqualification.

6. On all these factual and legal submissions, it is 5. contended by learned advocate Mr.Shah that the Tribunal fell into grave error of law in disallowing the deductions claimed under Section 57(iii) of the Act and, therefore, urged to accept the appeal. Similarly, learned advocate Mr. Soparkar appearing for the appellant of Tax Appeal No.326 of 2005 adopted the submissions made at bar by learned advocate Mr. Shah in support of his appeal.

7. Per contra, learned advocate Mr.M.R. Bhatt appearing for the Revenue in both the appeals supported the decisions of Assessing Officer, Commissioner of Income Tax and the Tribunal. Learned advocate Mr.Bhatt submitted that there are concurrent findings of facts of all the three authorities, namely, (i) the terms dis-entitling the appellant - Assessee to have any option regarding conversion of debentures until expiry of seven years from the date of allotment; (ii) it being a transaction of loan; (iii) the planning involved at the time of issue of such debentures inasmuch as total income from the business of the appellant - Assessee was Rs.19.50 lacs and the difference of amount of interest paid and earning was also Rs.19.50 lacs; (iv) the appellant - Assessee borrowed amount of Rs.3 crores from Arvind Mills Ltd. which is a company of Lalbhai Group and invested the said amount in OCDs of the above said four companies of Lalbhai Group, so, it would not be ground of interference under section 260A of the Act by taking another view on materials already examined so as to hold otherwise. Relying upon the decision of the Hon'ble Apex Court rendered in the case of Boodireddy Chandraiah v. Arigela Laxmi AIR 2008 SC 380, it is submitted that if finding of fact is not challenged and if particular view is taken by the authorities and even if another view is possible, it would not be the ground of interference under Section 260A of the Act unless apparent perversity is pointed out. According to learned advocate Mr.Bhatt, the appellant - Assessee has not raised any question of perversity in the present case. It is further submitted that the Revenue determined the true legal relation resulting from the transaction to ascertain its true character and after considering the facts of the case, the Revenue has ascertained that the transaction is of loan and not of OCDs as the dominant purpose of investment in debenture is to earn 12% interest. In support of such submission, learned advocate Mr.Bhatt has also placed reliance upon the decision of Punjab and Haryana High Court in the case of Rockman Cycle Industries (P.) Ltd. (supra) which was relied upon by learned advocate Mr.J.P. Shah appearing for the appellant - Assessee. Learned advocate Mr.Bhatt has also drawn our attention to the decision of the Hon'ble Apex Court rendered in case of Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706/132 Taxman 373 more particularly, observations made in case of McDowell & Co.Ltd. v. Commercial Tax Officer[1985] 154 ITR 148/22 Taxman 11 (SC) wherein, Justice Ranganath Mishra observed that "Tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay taxes honestly without resorting to subterfuges". Lastly, the learned advocate Mr.Bhatt contended that while considering the case to extend benefit under Section 57(iii) of the Act, it is mandatory to find out reason behind the investment and, if the dominant purpose is not for making or earning some income, then deduction under Section 57(iii) of the Act shall not be available and to ascertain the purpose, the Courts may lift the veil. In this connection, he has read observations recorded in paras 23, 70 to 83, 89 to 90 and 99 to 105 in the case of CIT v. Smt. Swapna Roy [2011] 331 ITR 367/[2010] 192 Taxman 105 (All.).

8. We have heard submissions in extenso made at bar and minutely examined the principles laid-down in the case-laws cited at bar as well as scope of Section 57(iii) of the Act.
9. To begin with, it is useful to reproduce first three observations recorded by the Hon'ble Apex Court in the case of Vodafone International Holdings B.V. (supra) which read as under:—

(i)		It is the task of the Court to ascertain the legal nature of the transaction and while doing so it has to look at the entire transaction as a whole and not adopt a dissecting approach.
(ii)		All tax planning is not illegal or illegitimate or impermissible.
(iii)		There is no conflict between McDowell and Azadi Bachao or between McDowell and Mathuram Agrawal.

9.1 While answering the question "Whether having regard to relationship between different concerns, where a transaction which is patently imprudent, takes place, the taxing authority should examine the question of business expediency and not go merely by the fact that the assessee had taken a decision in its wisdom which may be wrong or right?", the Larger Bench of Punjab & Haryana High Court in case of Rockman Cycle Industries (P.) Ltd. (supra), observed as under:

'18. Section 37 of the Act is a residuary section which provides for deduction on account of expenditure not being capital in nature, which are not as such specified in Sections 30 to 36 of the Act, but laid out or expended wholly and exclusively for the purpose of business or profession, while computing the income under the head "profits and gains of business or profession". The import of Sections 37(1)(iii) and 57(iii) of the Act was considered by Hon'ble the Supreme Court in CIT v. Rajendra Prasad Moody [1978] 115 ITR 519. It was a case where difference of opinion on the subject between various judgments of the High Courts was considered as the Tribunal had directly referred the matter for opinion of Hon'ble the Supreme Court. The issue under consideration therein was whether interest on money borrowed for investment in shares which had not yielded any dividend is permissible under Section 57(iii) of the Act. It was opined that even though the language of Section 37(1) is a little wider than that of Section 57(iii) of the Act, but that was of no effect, as the language of Section 57(iii) being clear and unambiguous has to be considered according to its plain natural meaning. It should not be given narrow and constricted meaning. It does not provide that expenditure shall be deductible only if any income is made or earned. The relevant paragraphs therefrom are extracted below:

"4. What S. 57(iii) requires is that the expenditure must be laid out or expended wholly or exclusively for the purpose of making or earning income. It is the purpose of the expenditure that is relevant in determining the applicability of s. 57(iii) and that purpose must be making or earning of income. S. 57(iii) does not require that this purpose must be fulfilled in order to qualify the expenditure for deduction. It does not say that the expenditure shall be deductible only if any income is made or earned. There is in fact nothing in the language of S. 57(iii) to suggest that the purpose for which the expenditure is made should fructify into any benefit by way of return in the shape of income. The plain natural construction of the language of s. 57 (iii) irresistibly leads to the conclusion that to bring a case within the section, it is not necessary that any income should in fact have been earned as a result of the expenditure. It may be pointed out that an identical view was taken by this court in Eastern Investments Ltd. v. CIT [1951] 20 ITR 1 (SC), where interpreting the corresponding provision in s. 12(2) of the Indian I.T. Act, 1922, which was ipsissima verba in the same terms as s. 57(iii), Bose J., speaking on behalf of the court observed:

"It is not necessary to show that the expenditure was a profitable one or that in fact any profit was earned." It is indeed difficult to see how, after this observation of the Court there can be any scope for controversy in regard to the interpretation of s. 57(iii).

It is also interesting to note that, according to the Revenue, the expenditure would disqualify for deduction only if no income results from such expenditure in a particular assessment year, but if there is some income, howsoever small or meagre, the expenditure would be eligible for deduction. This means that in a case where the expenditure is Rs.1,000, if there is income of even Re. 1, the expenditure would be deductible and there would be resulting loss of Rs. 999 under the head "Income from other sources". But if there is no income, then, on the argument of the Revenue, the expenditure would have to be ignored as it would not be liable to be deducted. This would indeed be a strange and highly anomalous result and it is difficult to believe that the legislature could have ever intended to produce such illogicality. Moreover, it must be remembered that when a profit and loss account is cast in respect of any source of income, what is allowed by the statute as proper expenditure would be debited as an outgoing and income would be credited as a receipt and the resulting income or loss would be determined. It would make no difference to this process whether the expenditure is X or Y or nil; whatever is the proper expenditure allowed by the statute would be debited. Equally, it would make no difference whether there is any income and if so, what, since whatever it be, X or Y or nil, would be credited. And the ultimate income or loss would be found. We fail to appreciate how expenditure which is otherwise a proper expenditure can cease to be such merely because there is no receipt of income. Whatever is a proper outgoing by way of expenditure must be debited irrespective of whether there is receipt of income or not. That is the plain requirement of proper accounting and the interpretation of s. 57(iii) cannot be different. The deduction of the expenditure cannot, in the circumstances, be held to be conditional upon the making or earning of the income.

It is true that the language of s. 37(1) is a little wider than that of s.57(iii), but we do not see how that can make any difference in the true interpretation of s. 57(iii). The language of s. 57(iii) is clear and unambiguous and it has to be construed according to its plain natural meaning and merely because a slightly wider phraseology is employed in another section which may take in something more, it does not mean that s. 57 (iii) should be given a narrow and constricted meaning not warranted by the language of the section and, in fact, contrary to such language.

This view which we are taking is clearly supported by the observations of Lord Thankerton in Huges v. Bank of New Zealand [1938] 6 ITR 636, (HL), where the learned Law Lord said:

"Expenditure in course of the trade which is unremunerative is none the less a proper deduction, if wholly and exclusively made for the purposes of the trade. It does not require the presence of a receipt on the credit side to justify the deduction of an expense."

19. The issue regarding jurisdiction of the taxing authorities was considered by Hon'ble the Supreme Court in CIT v. B. M. Kharwar, [1969] 72 ITR 603 (SC), wherein it was opined that a taxing authority is entitled and is indeed bound to determine the true legal relation resulting from a transaction. The relevant paragraph is extracted below:

"The taxing authority is entitled and is indeed bound to determine the true legal relation resulting from a transaction. If the parties have chosen to conceal by a device the legal relation, it is open to the taxing authorities to unravel the device and to determine the true character of the relationship. But the legal effect of a transaction cannot be displaced by probing into the "substance of the transaction". This principle applies alike to cases in which the legal relation is recorded in a formal document, and to cases where it has to be gathered from evidence- oral and documentary- and conduct of the parties to the transaction. The observation made by Bose J. in Sir Kikabhai Premchand v. CIT [1953] 24 ITR 506, (SC), "It is well recognised that in revenue cases regard must be had to the substance of the transaction rather than to its mere form. In the present case disregarding technicalities it is impossible to get away from the fact that the business is owned and run by the assessee himself. In such circumstances we are of the opinion that it is wholly unreal and artificial to separate the business from its owner and treat them as if they were separate entities trading with each other and then by means of a fictional sale introduce a fictional profit which in truth and in fact is non-existent", cannot be read as throwing any doubt on the principle that the true legal relation arising from a transaction alone determines the taxability of a receipt arising from the transaction."

20. The issue as to whether an assessee, who had borrowed funds carrying interest and advanced part thereof to its sister concern on interest free basis, can claim deduction to that extent was considered by Hon'ble the Supreme Court in SA Builders Limited's case (supra). In the aforesaid case, Hon'ble the Supreme Court opined that the tax authorities must not look at the matter from their own view point but that of a prudent businessman. In case, it is found that transfer of borrowed funds to a sister concern was on account of commercial expediency even if the same is interest free, the deduction claimed by the assessee cannot be disallowed. However, it was not laid down as a rule rather it was opined that each case will depend on its own facts and aspect of commercial expediency is to be examined by the Assessing Officer. Paragraphs 31 and 32 thereof are extracted below:

"31. We agree with the view taken by the Delhi High Court in CIT v. Dalmia Cement (Bharat) Ltd. [2002] 254 ITR 337 (Delhi) that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize its profit. The IT authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman. As already stated above, we have to see the transfer of the borrowed funds to a sister concern from the point of view of commercial expediency and not from the point of view whether the amount was advanced for earning profits.

32. We wish to make it clear that it is not our opinion that in every case interest on borrowed loan has to be allowed if the assessee advances it to a sister concern. It all depends on the facts and circumstances of the respective case. For instance, if the directors of the sister concern utilize the amount advanced to it by the assessee for their personal benefit, obviously it cannot be said that such money was advanced as a measure of commercial expediency. However, money can be said to be advanced to a sister concern for commercial expediency in many other circumstances (which need not be enumerated here). However, where it is obvious that a holding company has a deep interest in its subsidiary, and hence if the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the assessee would, in our opinion, ordinarily be entitled to deduction of interest on its borrowed loans.' [Emphasis supplied]

10. It is true that finding of facts recorded by all the three authorities in the instant case are not challenged and also it is not a case of the appellant - Assessee that findings of facts as recorded by the Assessing Officer, C.I.T. and the Tribunal are perverse in nature and, therefore, we are in agreement with the submissions made by learned advocate Mr.Bhatt that this Court cannot take another view so as to interfere with the findings of fact in exercise of powers under Section 260A of the Act.

11. Before the matters are taken on hand, it is relevant to note here that in the case of Smt.Swapna Roy (supra), the Hon'ble Allahabad High Court came to the conclusion that the assessing authority has rightly tried to find out the dominant purpose with regard to investment of borrowed money in the sister concern possessing fractured financial body and rightly held that investment in the firm running in deficit since several years cannot be held exclusively for the purpose to earn income and thus, it was found as colourable device to utilize the fund of one firm in other sister concerns for the purpose of trade or business. No such factual findings are found in the impugned orders and, therefore, the decision rendered in the case of Smt.Swapna Roy (supra) would not be helpful to the Revenue.

12. Considering the various case-laws cited at bar, it is evident that while considering the case to extend benefit under Section 57(iii) of the Act, it is mandatory to find out reason behind investment and, if the dominant purpose is not for making or earning some income, then deduction under Section 57(iii) of the Act shall not be available and to ascertain the purpose, the Courts may lift the veil. At the same time, it is the duty of the Court to ascertain the legal nature of the transaction and while doing so, it has to look at the entire transaction as a whole and not adopt a dissecting approach as observed in case of Vodafone International Holdings (supra). In nutshell, while considering the case to extend benefit under Section 157(iii) of the Act, the competent authority is within its right to find out the legal nature of transaction and for that purpose, it may lift the veil but while doing so, the competent authority has to consider the transaction as a whole and for that reason, the competent authority cannot split the transaction in more than one part and select any particular part so as to say that such part is illegal or illegitimate or impermissible and deny to extend benefits under Section 57(iii) of the Act.

13. It is an admitted fact that the Revenue has not disbelieved the loan transaction of Rs.3 crores with the company, namely, Arvind Mills Ltd. at the rate of 18.5% p.a. and payment of interest at the rate of 12% to the said four companies where, the appellant - Assessee made investment. It is not in dispute that the appellant - Assessee invested the amount equally in the above four companies so as to get interest at the rate of 12% p.a. It is not a case of the Revenue that the estimated book value of the shares of the said company, as reproduced hereinabove, is not true or correct. Thus, the transaction of borrowing of Rs.3 crores and payment of interest at the rate of 18.5% made by the appellant - Assessee to Arvind Mills Ltd. and, in turn, receipt of 12% interest by the appellant - Assessee from the investment made by it in the above four companies are believed and, therefore, the said transactions are genuine in nature. To disallow the deduction under Section 57(iii) of the Act, the assessing authority considered the transactions as loan and not as OCDs. The investment made by the appellant - Assessee in the said four companies were not loss making concern at the relevant time and, therefore, the decision of the appellant - Assessee to borrow the money at a higher rate of interest and to invest the same in the said four companies at the rate of 12% with a hope to get shares in future was made to earn income. So, it appears that the Revenue splitted the transactions in such a manner that it upheld the genuineness of borrowing, payment and receipt of interest but when question of considering payment of additional interest of 6.5% came into consideration, it termed the said part of transaction as colourable device/tax planning. So, the question is whether the Revenue can split the transaction in the manner it did so. It is true that the Court cannot re-examine/re-appreciate the findings of fact recorded by the Tribunal but as a matter of fact, after splitting transaction, as done in the case on hand, the Tribunal was required to term/treat the entire transaction as a whole colourable device. Had it been so, the matter would stand on different footing. In our opinion, the Tribunal cannot split the transaction into two parts or more. For that purpose, we made searching inquiry from learned advocate Mr.Bhatt to show any provision of law under the Act or precedent which empowers the Revenue to split transaction into two or more parts and then to hold any one particular part of said transaction as legal/permissible/admissible and other part of the same transaction being colourable device. Learned advocate Mr.Bhatt could not lay his finger on any provision/precedent which empowers the Revenue to do so. So, once the primary transaction of lending, borrowing and passing of payment of interest is found to be genuine, merely because it resulted into equal amount of income, it would not become a colourable device and consequently earning any disqualification.

14. At this stage, it is relevant to reproduce the closing observations made in the case of Special Prints Ltd. (supra) as under:—

"Before closing, we may notice that in case of Porrits and Spencer (Asia) Ltd. v. CIT [2010] 329 ITR 222 (P&H): 231 CTR 294, the Punjab and Haryana High Court had somewhat similar situation to tackle with. Referring to and relying on the decision of the apex court in the case of Union of India v. Azadi Bachhao Andolan (2003)263 ITR 706 (SC) and the decision of this court in the case of Banyan and Berry v. CIT (1996)222 ITR 831 (Guj), it was observed that once the transaction is genuine merely because it has been entered into with a motive to avoid tax, it would not become colourable device, earning any disqualification. It was observed as under (pg.234 of 329 ITR)

'The aforesaid discussion would show that once the transaction is genuine merely because it has been entered into with a motive to avoid tax, it would not become a colourable device and consequently earn any disqualification. The Hon'ble Supreme Court in the concluding paras of its judgment in Union of India v. Azadi Bachao Andolan (2003)263 ITR 706 (SC) has rejected the submission that an act, which is otherwise valid in law, cannot be treated as non est merely on the basis of some underlying motive supposedly resulting in some economic detriment or prejudice to the national interest as per the perception of the Revenue. The aforesaid view looks to be correct view. It has ready support from the Division Bench judgment of this Court rendered in the case of CIT v. Satya Nand Munjal [2002] 256 ITR 516 (P&H) and the Division Bench judgment of Orissa High Court in the case of Industrial Development Corporation of Orissa Ltd. v. CIT [2004] 268 ITR 130 and various other judgments of the Delhi and Madras High Courts (supra)."

15. In the result, the question is answered in negative and in favour of the appellant - Assessee and against the Revenue. Hence, the impugned orders passed by the Tribunal are set aside to the aforesaid extent. Appeals are allowed accordingly. No order as to costs.