interest earned on untilised borrowed capital

[ANIL JHUNJHUNWALA]

pl give me any suprme court judgment where assess was allowed  to off set  interest earned from  borrowed capital and interets paid on term and cc loan  as preoperative expenses  . i have seen tuticorn alkali case 1997 suprmecourt where tax have been levied on interets earned and interest paid  was capitalised . pl help me to find case in assesse favour

[Deepak Nagori]

Dear Anil,

Tuticorin Alkali case was applicable because the assessee earned interest on surplus funds. In your case, if you establish a clear nexus between the interest earned and interest spent, then you can claim the deduction u/s 57, which allows all expenses incurred to earn the corresponding income.

Regards

CA Deepak Nagori

AI Summary

Interest-income/expense nexus permits deduction under section 57 when interest expense directly relates to interest income for tax purposes. Treatment of interest on unutilised borrowed capital turns on a demonstrable nexus between interest earned and interest paid. Where a direct connection is shown between temporary investments generating interest and the associated interest outgoings, the tax principle permits deduction of expenses incurred to earn that income under section 57; by contrast, authorities like Tuticorin Alkali treated interest on surplus funds as taxable income while leaving capitalisation of interest paid as an accounting outcome.