Dr. B.P Saraf, J.:— By this reference under section 256(1) of the Income-tax Act, 1961, the Income-tax Appellate Tribunal has referred the following question of law to this court for opinion at the instance of the Revenue:

“Whether, on the facts and in the circumstances of the case, the asses-see was entitled to deduction under section 57(iii) of the Income-tax Act for the assessment years 1976-77 to 1978-79 of interest on the loans raised by the assessee for acquiring shares in Raval Tiles and Marbles Pvt. Ltd., with an intention to acquire control over the said company?”

2. The assessee had purchased shares in Raval Tiles and Marbles Pvt.

3. 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 assessment years 1976-77, 1977-78 and 1978-79, the assessee claimed deduction under section 57(iii) of the Income-tax Act, 1961 (“the Act”), of the interest paid by her on the loan obtained for acquiring the shares in the above company. The Income-tax Officer disallowed the claim of the assessee as, according to him, the loan taken by the assessee for the purchase 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 section 57(iii) of the Act. The asses-see appealed to the Appellate Assistant Commissioner of Income-tax. The Appellate Assistant Commissioner 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 section 57(iii) of the Act. The assessee appealed to the Income-tax Appellate Tribunal (“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 section 57(iii) of the Act. Hence, this reference at the instance of the Revenue.

4. We have heard learned counsel for the Revenue who submits that the interest paid by the assessee in this case does not fall within the purview of section 57(iii) of the Act and hence the same is not an allowable deduction in computation of the income of the assessee. Learned counsel submits that deduction under section 57(iii) is allowable only of an expenditure laid out or expended wholly or exclusively for the purpose of making or earning the income referred to in that section, i.e, “income from other sources”. According to him, in the instant case, the object of the acquisition of shares being acquisition of controlling interest in the company, the expenditure incurred on the loan obtained for that purpose could not be regarded as expenditure incurred wholly and exclusively for the purpose of making or earning income from other sources.

5. We have carefully considered the above submissions. Section 57 sets out the deductions which are permissible in the computation of the income chargeable under the head “Income from other sources”. clause (iii) of section 57 provides 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. Section 57(iii) of the Act, so far as relevant, as it stood at the material time, stood as below:

“57. Deductions.—The income chargeable under the head Income from other sources shall be computed after making the following deductions, namely:—

(iii) any other expenditure (not being in the nature of capital expenditure) la id out or expended wholly and exclusively for the purpose of making or earning such income?

6. It is clear from a plain reading of above provision that in order to get deduction, the expenditure should be incurred wholly and exclusively for the purpose of making or earning the income from other sources and that it should not be in the nature of capital expenditure. section 58(1)(a) further provides that no deduction shall be allowed in case the expenditure is in the nature of personal expenses of the assessee. The question which arises in this case is: whether the expenditure incurred for borrowing money for purchasing shares for acquiring controlling interest in a company can be held to be an expenditure incurred wholly or exclusively for earning income from dividend. There is no dispute in this case that the shares in question were purchased by the assessee for the purpose of acquiring controlling interest in the company and not for earning dividend. That being so, the expenditure incurred by way of interest on the loan taken by the assessee for the said purpose cannot be held to be an expenditure incurred wholly and exclusively for the purpose of earning income by way of dividends. From the nature of transaction, it is clear that the expenditure was not for the purpose of earning income by way of dividends but for the purpose of acquiring controlling interest in the company and, therefore, it would not be allowable as a deduction under section 57(iii) of the Act.

7. We are supported in our opinion by the decision of the Gujarat High Court in the case of Sarabhai Sons (P.) Ltd. v. CIT, [1993] 201 ITR 464. In that case, it was held that if the dominant purpose for which the expenditure was incurred was not to earn the income, the expenditure incurred in that behalf would fall outside the purview of section 57(iii) of the Act. We are also supported in our above conclusion by the decision of this court in Chinai and Co. Pvt. Ltd. v. CIT, [1994] 206 ITR 616. In that case, there was a dispute in regard to deduction of expenditure under section 37 of the Act. The expenditure was incurred by the assessee in fighting another group of shareholders to protect the investment in the erstwhile managed company. The court held that such an expenditure was not a business expenditure. It was observed that section 37 of the Act dealt with deductions, inter alia, of any expenditure laid out or expended wholly and exclusively for the purposes of business or profession. Such deduction has to be in respect of any expenditure for business which was carried on by the assessee at any time during the previous year. It was held that expenditure incurred in proxy war should not be deducted as business expenditure.

8. It may be pertinent to mention the distinction in the language used by the Legislature in sections 37(1) of the Act and 57(iii) of the Act. Section 37 provides for deduction of expenditure incurred wholly and exclusively “for the purpose of business” whereas section 57(iii) provides for deduction only of expenditure incurred wholly and exclusively “for the purpose of making or earning such income”. “Such income” refers to “income from other sources”. The expression “for the purpose of business” is narrower than the expression “for the purpose of making or earning such income”. In order that an expenditure may be admissible under section 57(iii) it is necessary that the primary motive of incurring it is directly to earn income falling under the head “Income from other sources”. That is not so under section 37 which allows deduction of expenditure “incurred wholly and exclusively for the purposes of the business”. Under section 57(iii), deduction will not be allowed if the expenditure is not incurred for the purpose of earning income falling under the head “Income from other sources”.

9. In view of the above, the question referred to us is answered in the negative, i.e, in favour of the Revenue and against the assessee. Reference is disposed of accordingly with no order as to costs.