TaxTMI 
TaxTMI 
2017 (12) TMI 56
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....he assessee has come up before this Court, raising two questions as substantial questions of law, in the following terms: "1. Whether on the facts and in the circumstances of the case the Appellate Tribunal was justified in disallowing the interest paid on bank loan, utilised for advancing to M/s. Capricon Shopping Complex from the interest received on the said advance? 2. Whether there were materials for the Appellate Tribunal to hold that the plea of set off could not be allowed on the ground that the interest on the O/D loan could not remain unadjusted?" 3. The appeal preferred under Section 260A of the Income Tax Act was admitted by this Court on 24.05.2010 framing the following substantial question of law: "Whether there were materials for the Appellate Tribunal to hold that the plea of set off could not be allowed on the ground that the interest on the O/D loan could not remain unadjusted?" Once a substantial question of law is framed by this Court, in terms of Section 260A of the Income Tax Act, it is open to consider the other substantial questions of law as well, if any. We heard both the sides accordingly. 4. The sequence of events reve....
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....ioner of Income Tax (Appeals)Thiruvananthapuram. After hearing both the sides, the Appellate Authority repelled the contentions raised by the appellant and the appeal was dismissed confirming the assessment order as per Annexure B dated 17.08.2005. This led to further appeal before the Income Tax Appellate Tribunal, where the matter was argued in detail. The assessee also filed a written argument note. After considering the facts and figures, the relevant provisions of law and the binding precedents, the Tribunal declined interference and the appeal was dismissed as per Annexure C order dated 28.02.2007, holding that the Tribunal did not find any close nexus between the amount of interest earned from the M/s. Capricon Shopping Complex (the sister concern of the assessee) and the interest paid to the Bank by the assessee against the 'Packing Credit facility' availed for the export business. It was also observed that the attempt made by the assessee to distinguish the verdict in Gopinathan's case (cited supra) was not successful and that there was no difference whether the deposit was made first and the loan was taken later or vice versa (with reference to the factual pos....
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....scussed by the assessing/appellate authority/Tribunal and there was no case that a perverse finding on fact was there, so as to constitute a question of law. Gopinathan's case was cited and the assessing officer relied on the said case only to show that there was 'no nexus' between the two instances of borrowing and lending. In the decision rendered by the Apex Court in Rajendra Prasad Moody's case and by the Delhi High Court in Vodaphone's case, it was held, referring to the factual context, that the nexus between the two transactions had been clearly established and it was accordingly, that deduction under Section 57(iii) was allowed. As it stands so, no interference is warranted, submits the learned Standing Counsel. 10. As referred to above, the crux of the case projected by the assessee was that the amount borrowed from the Bank agreeing to pay interest at the rate of 12% per annum, was advanced to the sister concern by name 'Capricon Shopping Complex', on the same date, agreeing to receive income by way of interest at the rate of 12% per annum. Since the amount advanced to the sister concern was the very same amount obtained from the Bankers of ....
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.... was pursuant to a reference made by the Tribunal to the Court under Section 256 of the IT Act, in view of a conflict in the decisions of the High Courts on the question as to whether interest on monies borrowed for investment in shares is an allowable expenditure under Section 57(iii) of the Act, when the shares had not yielded any return in the shape of dividend during the relevant assessment year. The Bench observed, with reference to the mandate under Section 57(iii) of the Act, that the expenditure to be deductible under Section 57(iii) must be laid out or expended wholly and exclusively for the purpose of making or earning such income. The stand of the Revenue that, unless income was generated in a particular year, there could not be any admissibility of the expenditure under section 57(iii) (taking the generation of income as sine qua non), was held as not liable to be sustained. In the said case, the amount borrowed was invested in shares and the interest paid on the borrowed amount was sought to be deducted in terms of Section 57(iii) of the Act. The Bench observed that, what Section 57(iii) requires is that expenditure must be laid out or expended wholly or exclusively fo....
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....having failed to establish the ingredients of Section 57(iii). 15. Coming to the decision rendered by the Delhi High Court (following the verdict of the Apex Court in Rajendra Prasad Moody's case) and sought to be relied on by the appellant/assessee, the question of law framed by the Court at the time of admitting the appeal, as given in paragraph '9' is in the following terms: "Did the Tribunal fall into error of law in holding that the expenditure on interest claimed by the Assessee could not be allowed in terms of Section 57(iii) of the Income Tax Act, 1961?" The scope of the verdict passed by the Apex Court in Rajendra Prasad Moody's case was discussed in paragraph 15 and some other decisions on the point have also been discussed in the subsequent paragraphs. The legal position as regards deduction under Section 57(iii) of the Act was summarised in paragraph 20 which reads as follows: "20. The legal position as regards deduction under Section 57(iii) of the Act of expenditure laid out or expended wholly or exclusively for the purpose of making or earning 'income from other sources' may be summarised as under: (i) Fo....
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....n drawn in terms of the sanction letter dated 2nd August 2001. The income earned on the loan advanced to SCL was rightly offered to tax by the Assessee as 'income from other sources'. Since the interest paid to HSBC on the loan availed was in the nature of an expenditure wholly and exclusively laid out for the purpose of earning the interest income, it ought to be permitted to be netted against such 'income from other sources' in terms of Section 57(iii). From the above, it is quite clear that the Bankers of the assessee therein had clearly permitted the assessee to divert the amount granted as loan for advancing loans to others ( of choice of the assessee) and as such, the income generated by way of interest from the latter transaction could be set off against the expenditure paid by the assessee to the Bankers since the direct nexus between earning of interest on the loan advanced by the assessee and payment of interest on the loan drawn was clearly established. The transaction in the case of the appellant assessee stands entirely on a different footing and such nexus has not been established for the reasons mentioned above. That apart, in the instant case, no ....
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....ides, a finding was rendered by the Apex Court in the following terms: " 3. It was not disputed, as it could not be, that if the assessee had taken a loan from another bank and paid interest thereon his real income would not diminish to the extent thereof. The only question then is : does it make any difference that he took the loan from the same bank in which he had placed the fixed deposit. There is no difference in the eye of the law. The interest that the assessee received from the bank was income in his hands. It could stand diminished only if there was a provision in law which permits such diminution. There is none, and, therefore, the amount paid by the assessee as interest on the loan that he took from the bank did not reduce his income by way of interest on the fixed deposit placed by him in the bank. From the above, it is quite clear that the point considered by the Apex Court was whether there was any nexus between the two transactions, to have the benefit flowing from the Section 57 (iii) of the Act , which contention was also there, as putforth by the learned counsel for the assessee before the Tribunal, which was taken note of in the following terms: ....