AI Drafter 
TaxTMI 
TaxTMI 
2020 (5) TMI 111
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.... appeals, except variance in figures. Hence, I reproduce the grounds raised in IT(IT)A No.1715/Bang/2019 for assessment year2012-2013:- "(1) The learned CIT(A) erred in passing the order in the manner which he did. (2) The learned CIT(A) ought to have appreciated that the appellant was right in her claim for netting of interest income and therefore, the same ought to have been allowed. (3) The ld.CIT(A) ought to have considered the case laws filed by the Appellant where in the netting off interest has to be allowed and same ought to have allowed in the interest of justice. (4) The ld.CIT(A) ought to have appreciated hat if at all there was any error in the interest income, it was due to the belated upholding of the TDS return by the concerned Bank and for no default of the appellant and hence, ought to have refrained from confirming the said addition of Rs. 22,79,226. (5) The learned CIT(A) erred in upholding the interest u/s 234B and 234C of the Act. (6) Without prejudice the disallowance as confirmed bythe learned CIT(Appeals) are arbitrary excessive and ought to be reduced substantially. (7) For these and such other ....
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....ears to me that the findings of the CIT in the present case, bring the payment in question within that description. They found (in words which I have already quoted) that payment was made for the sound commercial purpose of enabling the company to retain the existing and future members of staff and for increasing the efficiency of the staff; and after referring to the contention of the Crown that the sum of Sterling Pound 31,784 was not money wholly and exclusively laid out for the purpose of the trade under the rule above referred to, they found deduction was admissible-thus in effect, though not in terms, negativing the Crowns contentions. I think that there was ample material to support the findings of the CIT, and accordingly hold that this prohibition does not apply." It will, therefore, be clear that even if an expense is incurred voluntarily, it may still be construed as 'wholly and exclusively'. Explaining this principle, Hon'ble Supreme Court has, in the case of Sassoon J David & Co. (P) Ltd. vs. CIT (1979) 118 ITR 261 (SC) inter alia observed that: "It has to be observed here that the expression "wholly and exclusively" used in s. 10(2)(xv) o....
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....eeds, when an assessee raises a loan against the fixed deposits, so as to keep the source of earning intact, the expenditure so incurred in wholly and exclusively to earn the fixed deposit interest income. The authorities below were apparently swayed by the fact that the borrowings were triggered by assessee's financial needs for personal purposes and, by that logic, the borrowing cannot be said to be wholly and exclusively for the purposes of earning interest income, but what this approach overlooks is whether the expenditure is incurred for directly contributing to the beginning of or triggering the source of income or whether the expenditure is for protecting, and thus keeping alive, that source of income, in either case it is expenditure incurred wholly and exclusively for the purpose of earning that income. The assessee indeed required that money, so raised by borrowing against the fixed deposits, for her personal purposes but thats not relevant for the present purposes. The assessee could have gone for premature encashment of bank deposits, and thus ended the source of income itself, as well, but instead of doing so, she resorted to borrowings against the fixed deposit an....
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....he claim of the assessee is allowable u/s. 57 of IT Act because the expenses are incurred in earning of income from other sources. As per the details of the expenses claimed by the assessee, it is available on table 2 of written submissions filed by the assessee before the CIT(A) as reproduced above, it is seen that there is no claim regarding any expenses specified in clause (i) of section 57 i.e. commission or remuneration to banker or any other person for the purpose of realising dividend or interest income because the assessee has claimed deduction on account of PMS charges, Salaries, Professional charges, vehicle maintenance, travel, computer maintenance, printing and stationery, telephone charges and bank charges. Hence no deduction is allowable in the present case under clause (i) of section 57. 9. Regarding the allowability of deduction under clause (iii) of section 57, it has to be established by the assessee that expenditure has been exclusively laid out or expended wholly and exclusively for the purpose of making or earning such income taxable under the head 'income from other sources' and a categorical finding has been given by CIT (A) in para no. 6.2 of his or....
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....poses and so long as it is in operation, it has to maintain its status as a company and it has to discharge certain legal obligations and for that purpose, it is necessary to appoint clerical staff and a secretary or accountant and incur incidental expenses and therefore, such expenses incurred were wholly and exclusively for the activities to earn income and it was held that such expenses are allowable. For the same ratio, judgment of Hon'ble Bombay High Court rendered in the case of Chinai & Co. (P.) Ltd. Vs. CIT a reported in 206 ITR 616 was also followed and the judgment of Hon'ble Allahabad High Court rendered in the case of Rampur Timbur & Turnery Co. Ltd. as reported in 129 ITR 58 was also followed. Since in the present case, the assessee is not a company, these judgments of Hon'ble Calcutta High Court in the case of CIT Vs. Ganga Properties Ltd. (supra), Hon'ble Bombay High Court in the case of Chinai & Co. (P.) Ltd. Vs. CIT (supra) and of Hon'ble Allahabad High Court in the case of Rampur Timbur & Turnery Co. Ltd. (supra) have no relevance and since, the Tribunal has followed these judgments and decided the issue in case of that assessee being a company, this Tribunal orde....
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....tion Ltd. v. CIT in ITA No.79/2012 dated 01.08.2012, wherein it was held as under:- "9. It would be expedient to reproduce the provision. Section 57(iii) of the Act, as far as relevant provides:- "The income chargeable under the head 'income from other sources' shall be computed after making the following deductions, namely:- (i) and (ii).............. (iii) any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income: Provided ............. Explanation: ............" 10. In Vijaya Laxmi Sugar Mills Ltd. v. Commissioner of Income Tax (1991) 191 ITR 641 (SC) where the company was ordered to be wound up by the High Court, certain income had accrued by way of interest income from monies invested in fixed deposits with certain banks. A claim was made for deduction of expenses incurred towards salaries, legal fees, liquidation expenses, TA and DA, postage and stationery in computing its income. The Hon'ble Supreme Court held that it could not be said that any business was being carried on by the company and, the....
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....were incurred for the purpose of maintenance of the source. The requirement under section 57(iii) that the expenditure should have been incurred "for the purpose of making or earning such income" show that the object of spending or the end or aim or the intention of such spending was for earning the interest income. There could be no doubt that the expenditure incurred by the Liquidator in this case can by no stretch be said to have been incurred with the object or for the purpose of earning the interest income. The Tribunal was, therefore, right in holding that the expenses claimed are not related to the interest income and was not a deductible expenditure under section 57." 11. Further, this Court in Consumer Electronics (Punjab) Ltd. Vs. ACIT, Circle-III, Chandigarh, ITA No. 198 of 2003 decided on 29.9.2010 relying upon the judgment of Hon'ble Apex Court in M/s Tuticorin Alkali Chemicals and Fertilizers Ltd. v. Commissioner of Income Tax, Madras (1997) 227 ITR 172 under similar circumstances held that the assessee was not entitled to deduction under Section 57(iii) of the Act. It was observed as under:- "7. For deciding the said questions, it is necessary t....
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....hargeable under Section 56 of the Act. XX XX XX XX XX XX XX There are specific provisions in the Income Tax Act of setting off of loss from one source against income from another source under the same head of income (Section 70), as well as setting off of loss from one head against income ....
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....m tax, it will be taxable. The fact that the source of income was borrowed money does not detract anything from the revenue character of the receipt. The question of adjustment of interest payable by the Company against the interest earned by it will depend upon the provisions of the Act. The expenditure would have been deductible as incurred for the purpose of business if the assessee's business had commenced. But that is not the case here. The assessee may be entitled to capitalise the interest payable by it. But what the assessee cannot claim is adjustment of this expenditure against interest assessable under Section 56. Section 57 of the Act sets out in its clauses (i) to (iii) the expenditures which are allowable as deduction from income assessable under Section 56. It is not the case of the assessee that the interest payable by it on term loans are allowable as deduction under Section 57 of the Act." 12. Adverting to the judgments on which reliance had been placed by the learned counsel, suffice it to notice that in view of the subsequent judgment of the Hon'ble Apex Court in Vijaya Laxmi Sagar Mills Ltd's case (supra) and this Court in Consumer Electroni....
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....t the same time, the assessee availed loan amounting to Rs. 2.5 crore from State Bank of India and claimed the interest of Rs. 25,16,005 to be set off against the interest received from various banks from fixed deposits. The same was denied. The contention of the learned AR is that there is a direct nexus between the interest receipt from banks and interest payments to banks, and also this issue covered by the decision of the Agra Bench of the Tribunal in the case of Raj Kumar Agarwal (supra). The interest expenditure is allowable as deduction when it is paid on monies used for acquiring asset from which income derived is assessable under the head "income from other sources". The Hon'ble Karnataka High Court in the case of Karnataka Forest Plantation v. CIT [(1985) 156 ITR 275 (Kar.)], wherein it was held by the Hon'ble Court that when the assessee after borrowing amount for the purpose of business, had kept part of it in short deposit in bank, and the interest paid on amount borrowed was not deductible from interest earned from short term deposits, as borrowing was not for the purpose of earning such interest income. The Hon'ble Karnataka High Court in the case of H.H.Maharajakuma....
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....icing the judgment of the Hon'ble Supreme Court in the case of CIT v. V.P.Gopinathan (supra). Hence, I am not inclined to follow the judgment of the Hon'ble Karnataka High Court in the case of H.H.Maharajakumari Meenakshideviavaru v. CIT (supra). The assessee has also relied on the judgment of the Hon'ble Delhi High Court in the case of CIT v. Uk Bose in ITA No.258/2010 dated 30th November, 2012, wherein the Hon'ble High Court allowed the payment of interest on loan taken for purchase of an exempted asset. In that case, the assessee has received interest from Sahara India Corporation Limited, in respect of land sold to them against which the sales proceeds were received late, and on the other hand has also paid interest on loan obtained earlier for the purchase of the said land and the difference of the same has also been offered for the assessment in the revised return. The assessee was under wrong impression that since the sale of land was not taxable receipt in the hands of the assessee, it was presumed that the interest element also was not taxable and obtained proper legal advances and the same is being offered for assessment. The Assessing Officer was of the opinion tha....