This appeal by assessee is against order of CIT (A) in his appeal No. CIT (A) -I/CC-I/ 176/81-82 dt. 23rd Dec., 1982 relating to asst. yr. 1978-79. following ground of appeal has been raised in this appeal: "The ld. CIT (A) erred in holding that acquiring of controlling shares in Universal Ferro & Allied Chemicals Ltd. by Appellant Company for Rs. 35.31 lacs in March 1971 was investment simpliciter and not business venture and that interest of Rs. 1,66,466 paid on balance of loan taken for said purpose for year under reference is not allowable as business expenditure but only against Dividend Income under other sources." facts relating to this issue are in short compass, and since they are quite significant in context of decision in this case they are briefly recounted hereunder. appellant is Private Limited Company incorporated in 1961, with share capital of Rs. 10 lakhs. It would appear, that it had advanced major part o f share capital to M/s Universal Ferro & Allied Chemicals Ltd. In year 1968 it had started mining dolomite and also purchased truck for letting out on hire. It would appear, that, in 1971, appellant decided to acquire majority share interest in M/s Universal Ferro & Allied Chemicals Ltd. hitherto held by Nizam and other as nominees. In pursuance of this decision, substantial block of shares, namely, 2,500 A-class 7 1/2 cum redeemable preference shares, another 2,500 B- C class cum. redeemable preference shares (both fully paid up) and 3,00,000 equity shares of Rs. 10 each (partly paid up namely, Rs. 5 per share were purchased from Nizam and others on 2nd March, 1971 from which date, M/s Universal Ferro & Allied Chemicals Ltd. became subsidiary of appellant. At relevant time of purchase, appellant did not possess sufficient funds to meet purchase price of these shares, namely, Rs. 35.31 lakhs. portion of same was met by appellant and sum of Rs. 30 lakhs was contracted as loan payable to Nizam and other which was to be repaid in stipulated manner. Out of this loan, sum of Rs. 18 lakhs was outstanding at beginning of he accounting period relevant for asst. yr. 1978-79 under consideration This loan was reduced to Rs. 16 lakhs at end of relevant accounting year interest paid with reference to this loan was Rs. 1,66,466 inclusive of Rs. 55,218 being interest on another sum, total claim on account of interest was Rs. 2,21,684. appellant contended before ITO that, whole of interest was admissible in computation its business profits, and, no portion of same was to be apportioned as attributable to earning of dividend income. This was based on contention, that purchase of majority interest share of M/s Universal Ferro & Allied Chemicals Ltd. in 1971 was with view to acquiring control and management of company and effecting improvement in affairs of company which would benefit assessee in form of greater dividends on its investment. It was also submitted, that, right from inception, association of appellant with other company was motivated by business considerations, namely, either to earn interest on deposits, or return by way of service commission and finally, to acquire control and management of company itself It was, therefore, contended. that acquisition of majority interest in M/s Universal Ferro & Allied Chemicals Ltd. was business venture pure and simple and, even though dividend income was assessable under s. 57, interest paid on loan, to acquire shares of company was admissible as business outgoing, business being acquisition of control and management of company. As regard payment of interest on other loans, which is not quite relevant in context, certain other explanations were advanced. ITO did not agree with appellant that, interest was to be allowed as deduction in computation of income from business of assessee. He restricted allowance against business income in this behalf to 50per cent of Rs. 55,218. He held, that, interest of Rs. 1,66,466 payable to Nizam as also sum of Rs. 27,609 being other 50per cent of Rs. 55,218 was relatable to investment made in share of M/s Universal Ferro & Allied Chemicals Ltd. and allowed deduction in respect of same while computing dividend income under head "other sources". In other words, ITO held, that, transaction of acquisition of majority interest shares in M/s Universal Ferro & Allied Chemicals was pure and simple in nature of investment and there absolutely no overtones of business venture about same. On appeal, CIT (A), after fairly detailed and factually high lighted discussion, came to conclusion, that, there was no basis for disallowance of Rs. 27,609 being 50per cent of interest paid to share holders and directed ITO to allow same as deduction in computing business profits. As regards interest paid to Nizam, his conclusions in this behalf may be summarised as under. He found direct nexus between loan contracted with Nizam and other and purchase of majority interest in shares in year 1971 of M/s Universal Ferro & Allied Chemicals Ltd. According to him, this finding was not disputed. He did not agree, that acquisition of majority holding to assessee was in pursuance of business venture. No doubt, by acquiring majority interest. appellant might have been in position to put company s affairs and working on better footing, which resulted in company making greater profits and thereby paying greater dividends on its shares. His distinguished rulings cited before him in Addl. CIT vs. Laxmi Agents P. Ltd. (1980) 125 ITR 226 (Guj) & CIT vs. Cotton Fabrics Ltd. (1981) 23 CTR (Guj) 247: (1981) 131 ITR 99 (Guj). He noticed, that, in (1980) 125 ITR 227 investment were made for purpose of acquiring share of managed company, with view to protecting managing agency business and hence main object of investment was not to earn dividend. In (1981) 131 ITR 99 (Guj) assessee was admittedly dealer in shares and therefore, in both case, apart from earning dividend, main object of assessee was either in connection with their managing agency business or business of dealing in shares. As far as instant case was concerned, he came to finding that investment made by appellant in M/s Universal Ferro & Allied Chemicals Ltd. was investment simpliciter despite fact, that it might have held as high as 75per cent of share of subsidiary company. He was convinced, that shares were purchased only with view to marking investment in shares and there was absolutely no connection between business activities of appellant company and those of acquired company. In this connection, he found, that three fold business activity carried on by assessee-company during previous year, were, those of extraction and sale of dolomite; purchase and sale of briquets and earning income from letting truck on hire. He, therefore, declaimed to agree that loan obtained from Nizam and other had been utilised for purpose of any business activities of assessee. had been utilised for purpose of any business activities of assessee. Factually no part of loan had gone into any business activity of assessee. He, therefore, held, that, investment in shares of company was pure and simple investment, with view to earning dividends even though in process, assessee might have acquired majority in interest in share holding of he company and also in its control and management. He, therefore, confirmed view of ITO, that, interest of Rs. 1,66,466 could only be allowed as deduction against dividend and income. Aggrieved with above finding, assessee is in appeal before us. submissions made on behalf of appellant may be summarised briefly as under. business of assessee was mining of dolomite, besides purchase n d sale of briquette inclusive of letting on hire truck. assessee had advanced certain money in earlier years to M/s Universal Ferro & Allied Chemicals Ltd. When decision was taken to purchase shares of company, it was in bad shape After assessee had acquired majority share interest, it was able to bring back company to should condition, which incidentally resulted in assessee receiving higher dividends. Dolomite was one of raw materials for manufacture of Ferro manganese, which was being produced by Universal Ferro & Allied Chemicals Ltd. By acquiring majority interest in this company, assessee had obtained captive market for dolomite mined by it. Briqultte is manufactured out of waste, which is bye-product of manufacture of ferro manganese and assessee had by means of acquiring shares of company, obtained permanent supplier of this material, in which it had been dealing. truck was also hired out to M/s Universal Ferro & Allied Chemicals Ltd. Since abolition of system of managing agency, only way to obtain control and management of company was by means of acquiring majority share holding in company and that was what assessee had done. It was, therefore, submitted, that, investment simpliciter should be distinguished from investment for purpose of acquiring control and management of company s affairs. In present case, according to ld. Representative, assesses was interested in acquiring control and management of other company, with object of improving its affairs as also obtaining g steady market for dolomite mind by it as also source for briquettes dealt in by it. It was further submitted, that, when shares were purchased, they were practically of no value and, therefore, investment in shares was not with view to make investment simpliciter. Reliance was placed on (1970) 125 ITR (Guj) (supra) and (1981) 131 ITR 99 (Guj) (supra). Our attention was also invited to case laws relied upon before lower authorities gist of which has been given at pages 21 to 23 of paper book. In fine, it was, therefore, submitted, that object of making investment as, with view to obtaining control and management of affairs of company in furtherance of business interest of assessee and, therefore, interest paid on loans with which shares were purchased, was essentially allowable deduction, while computing business income of company, even, though dividend received from shares might be assessed under s. 56. On behalf of Department, reliance was placed on order of CIT (A) and following further submissions were made. In present context, it has to be decided first of all, as to what was business activity of company, assessee was not dealer in shares. shares have been shown in balance sheet under head "currest investment" and not under head "currest investments" or stock in trade. similar claim made by assessee for asst. yr. 1974-75 was decided against assessee by AAC and no appeal had been preferred against same. Our attention was invited to CIT vs. Model Manufacturing CO. P. Ltd. (1980) 122 ITR 767 (Cal) & CIT. vs. Rajedra Prasad Mody (1978) 115 ITR 519 (SC). After careful consideration of facts and circumstances, we are entirely in agreement with conclusions of CIT (A) in this behalf, namely that acquisition of he shares of M/s Universal Ferro & Allied Chemicals Ltd. had absolutely nothing to do with business activities of assessee and, therefore, interest paid on loan, with which shares were acquired, cannot be allowed as deduction in computing business income of assessee. direct nexus between loan contracted from Nizam and purchase of shares in 1971 is not disputed by assessee. business activities of assessee and company are quite different. assessee is not dealer in shares. business activities of assessee-company consist of extraction of dolomite and purchase and sale of briquettes apart from letting out truck on hire. It is far fetched proposition to contend, that, assessee had gone to extent of investing Rs. 35 lakhs in share of company with view to selling dolomite mined by it to that company. captive market does not appear to be sole considerations for acquisition of shares. At most, it may be incidental. But main reason for purchase of shares must have been dividends, that shares would ultimately yield. At any rate we are unable to agree, that assessee was not motivated by business consideration in acquiring these shares in absence of any solid evidence in this behalf. part form dividends, other benefits assessee might have derived are purely incidental. dividend derived by assessee during year was of order of Rs. 3,10,500. decision relied upon are also not apposite to facts of this case. In Addl. CIT vs. Laxmi Agents P. Ltd. (1980) ITR 227 (Guj) 227, (supra) High Court found, borrowings were made only for purpose of assessee s managing agency business and investment made in shares of he managing company was with view to protecting its managing agency business and hence main object of investment was no to earn dividend. On these facts, High Court held, that, interest paid on capital borrowed was for purpose of business. facts here are totally different. In CIT vs. Cotton Fabrics Ltd. (1981) 23 CTR (Guj) 24: (1981) 131 ITR 99 (Guj), assessee was admittedly share dealer and, therefore, decision turned on this point. In CIT vs. Model Mnufacturing Co. P. Ltd. (1980) 122 ITR 767, (Cal) decision is factually more akin to case on hand. facts have been succinctly brought out in head note of decision, which we reproduce hereunder: "At instance of NK, its director, assessee-company purchased 10,100 shares, in NCBM Ltd. in names of NK and TK for sum of Rs. 27,77,500 at rate of 275 per share, NK and TK, in turn, sold said shares to assessee on same date. sellers were paid to extent of Rs. 14,29,403, by assessee by borrowing amount from concern, K & Co. Another 3.400 shares in NCBM Ltd. were also purchased by assessee in name of one BJ, relative of NK and TK. price of these shares was paid by assessee by taking another loan of Rs. 4,85,000 from K & Co. For asst. yrs. 1962-63 and 1963-64, question arose at stage of appeal before Tribunal, whether interest paid on amounts borrowed by assessee for purchasing shares of NCBM Ltd. was allowable as business expenditure or could be allowed under s. 57 of IT Act, 1961, against dividend (i. e. , Income from other sources). Tribunal found that assessee did not purchase share for purpose of dealing in them and that apparent object of assessee was to acquire controlling interest in NCBM Ltd. either by NK and TK or by assessee itself, and held that interest paid on amounts borrowed by assessee could be allowed as business expenditure, but whatever might be purpose in whatever might be purpose in purchasing share of NCBM Ltd. expectation of dividend could not be denied and, therefore, interest was legitimate deductible expenses against dividend income and could be allowed under s. 57. On reference: Held, that though ultimate or ulterior motive of assessee might have been to confer controlling interest either to itself or to NK and TN, immediate purpose for acquisition of shares was to earn income form dividends thereof and Tribunal was, therefore, right in holding that interest was deductible under s. 57 against its income from other sources." In this case also loans were obtained for purchasing shares with object of acquiring controlling interest in company concerned. It was held, that, thought ultimate or ulterior motive of assessee might have been to acquire controlling interest, immediate purpose was to earn income form dividends. other decision relied upon by assessee are distinguishable on facts and, therefore, we do not propose to refer to them in detail. Suffice it to say, that immediate object of company in acquiring shares was with view to earning dividends, that shares would ultimately yield once company is put on sound basis. All other considerations, according to us are incidental or coincidental. We respectfully following decision in (1980) 122 ITR 767 (Cal) uphold order of CIT (A) and dismiss appeal filed by assessee. assessee. *** CHEMICALS & FERRO ALLOYS (P) LTD. v. INCOME TAX OFFICER