Exempt interest on foreign currency deposits on a gross basis becomes academic where no attributable expenditure is found.

Interest exempt under section 10(15)(iv)(fa) was claimed on a gross basis for approved foreign currency deposits. The Revenue argued that only net interest, after excluding expenditure attributable to earning the income and by reference to section 14A, could qualify for exemption. However, the appellate finding that no identifiable expenditure or borrowed funds had been incurred to earn the exempt interest was left unchallenged. On that footing, the gross-versus-net controversy became academic and did not require merits adjudication. The Revenue's ground was rejected as devoid of substance, and the assessee retained the exemption allowed by the first appellate authority.

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Issues: Whether the Revenue's challenge to the allowance of exemption of interest under section 10(15)(iv)(fa) on a gross basis survived for adjudication when the finding that no identifiable expenditure had been incurred to earn the interest remained unchallenged.

Analysis: The exemption provision covered interest payable by a scheduled bank to a non-resident on approved foreign currency deposits. The Revenue's contention was that only net interest, after deducting expenditure attributable to earning the income, could qualify for exemption and that section 14A supported such restriction. The assessee's case, accepted by the appellate authority, was that no expenditure or borrowed funds identifiable with the exempt interest had been incurred, and the Revenue did not assail that factual finding. In those circumstances, the dispute as to whether exemption should be computed on a gross or net basis ceased to have practical significance and remained merely academic.

Conclusion: The issue was not adjudicated on merits and the Revenue's ground was rejected as devoid of substance.

Final Conclusion: The appeal failed and the assessee retained the benefit of the exemption as allowed by the first appellate authority.

Ratio Decidendi: Where the factual finding that no identifiable expenditure was incurred to earn the exempt income is left unchallenged, a dispute on gross-versus-net computation of exemption becomes academic and does not warrant adjudication.

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