TaxTMI 
TaxTMI 
2007 (10) TMI 650
X X X X Extracts X X X X
X X X X Extracts X X X X
.... before it under section 254(2) of the Act seeking rectification of its order dated 30-9-2003 by which it dismissed the assessee's appeal. 1.2 It requires to be noticed that the Appellant had challenged the main order dated 30-9-2003 passed by the Tribunal dismissing ITA No. 3523/Delhi/1997, in ITA No. 34 of 2005. However, on 18-2-2005 the appellant withdrew the ITA No. 34 of 2005 and accordingly this Court dismissed the said appeal as withdrawn on that date. Further this Court framed the following question of law for consideration in the present appeal: "Whether the Income-tax Appellate Tribunal was correct in law in holding that the assessee is entitled to reduce interest paid by it from the interest received by it, while calc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....om the total indirect cost was not correct and disallowed the same. The Assessing Officer further took the view that the assessee had debited a sum of Rs. 4,03,422 to the Profit & Loss Account ('P&L Account') as interest on Fixed Deposit Receipts ('FDRs'). The details produced revealed that the assessee had paid a sum of Rs. 12,54,280 as interest to the bank on the credit facilities enjoyed by it and received a sum of Rs. 8,50,858 as interest on FDRs kept as margin money with the bank. After 'netting' the interest earned against the interest paid, the difference was debited by the assessee to the P&L account. The Assessing Officer held that the interest paid and the interest received were two separate transactions. Since the assessee had ut....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Special Bench of the Tribunal in Lalsons Enterprises v. Dy. CIT [2004] 89 ITD 25 (Delhi) (SB), the assessee filed an application before the Tribunal under section 254(2) of the Act for rectification stating that it was entitled to netting of interest in terms of that decision. By its order dated 7-10-2004 the Tribunal dismissed the application on the ground that the judgment in Lalsons Enterprises' case (supra) had been rendered after the decision dated 30-9-2003 of the Tribunal in the assessee's appeal and that, therefore, this did not constitute a ground for rectification. 8. The learned counsel for the assessee submitted that in view of the judgments of this Court in CIT v. Shri Ram Honda Power Equip. [2007] 289 ITR 475 (Delhi) a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the above, we may add a few lines by way of clarification. It will bear examination whether obtaining the loan and paying interest thereon (laying out the expenditure by way of interest) was 'wholly and exclusively' for the purpose of earning the interest on the fixed deposit, to draw an analogy from section 37. This nexus will have to be shown by the assessee for application of the netting principle." [Emphasis supplied] This Court in Shri Ram Honda Power Equip.further concluded (ITR, p.509): "(i)to (iii) xxxxxxxxxxxxxx (iv)Where surplus funds are parked with the bank and interest is earned thereon it can only be categorised as income from other sources. This receipt merits separate treatment under section 56 of the Ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g the loan and paying interest thereon (laying out the expenditure by way of interest) for the purpose of earning the interest on the fixed deposit, to draw an analogy from section 37, will require to be shown by the assessee for application of the letting principle." (p. 507) It may be recalled that this Court in fact followed the line of reasoning adopted by the Kerala High Court in K. Ravindranathan Nair's case. 10. Turning to the case on hand, the first question is whether the interest earned by the assessee on FDRs kept with the Bank for the purpose of margin money as a condition for availing credit facilities could be termed as business income? If the answer to this is in the affirmative the second question is whether netting is....