2004 (7) TMI 39

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.... is a reasonable expenditure and is wholly and exclusively made for the purpose of earning of income, and therefore, the residuary provision under section 57(iii) of the Income-tax Act, 1961 (for brevity "the Act"), is applicable to this case, as the same is not a capital expenditure, but an expenditure laid out or expended wholly and exclusively for making or earning such income. Concisely, the impugned appeal is related to the assessment year 1996-97. The respondent/assessee filed a return of income claiming a deduction of Rs. 60,00,000 (Rs. 52,00,000 to Sundaram Finance and Rs. 8,10,000 to Diamond Districts) being the interest paid on borrowed funds. During the assessment under section 147 of the Act, it was found that the amount borrow....

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....ed wholly and exclusively for making or earning such income. As against the order of the Tribunal dated October 28, 2003, the appellant/Revenue had preferred the present appeal on the following substantial questions of law: "(i) Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the amount of interest-free loan given to Binny and Co. Ltd. by the assessee can be termed as amount expended for earning income from other sources? And (ii) Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the deduction under section 57(iii) of the Act should be allowed of the interest paid on funds borrowed and given as interest-free loan?" Heard Mr. J. Narayanasamy, learned co....

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....ys for the purpose of making investment in certain shares and paid interest thereon during the accounting period relevant to the assessment year, but did not receive any dividend on the shares purchased with those moneys, whether the interest on such moneys borrowed is admissible under section 57(iii) of the Act in computing income from other sources came for the consideration of the Full Bench of the apex court in CIT v. Rajendra Prasad Moody [1978] 115 ITR 519, wherein the Full Bench held that the interest on moneys borrowed for investment in shares which had not yielded any dividend was admissible as a deduction under section 57(iii) of the Act. The plain and natural construction of the language of section 57(iii) of the Act, irresistib....