TaxTMI 
TaxTMI 
2020 (8) TMI 435
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.... Gopinathan confirmed the decision merely on the fact that the argument of the Assessee of real income was not accepted , whereas there is no such argument in the case Anjani Vinayak. 5. The CIT(A) erred is not considering the expression "wholly and exclusively" and that does not mean necessarily. 6. The CIT(A) erred in not noticing the finding of the ITAT Agra in the case of Raj Kumari Agarwal wherein it was held an such expenditure is an expenditure incurred wholly and exclusively for earning from interest on fixed deposits, whereas there is no such discussion in the case of Dr. V.P. Gopinathan 248 ITR 449 7. The above grounds are without prejudice to each other. 8. The appellant craves leave to add, modify and withdraw any other grounds of appeal before or during the appellate proceedings. From the aforesaid grounds it would be clear that the only grievance of the assessee relates to the confirmation of disallowance of claim for deduction under section 57(iii) of the Income Tax Act, 1961 (hereinafter referred to as 'Act'). 3. Facts of the case in brief are that the assessee filed her return of income on 21/03/2015 declaring an income of Rs. 13,20,390/-. Later on, the c....
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....nected to earning of the income in the sense that the expenditure was not triggered by the objective to earn that income, but the expenditure was, nonetheless, wholly and exclusively to earn or protect that income, it will not cease to be deductible in nature. It is also important to bear in mind the fact that a borrowing against fixed deposit cannot be considered in isolation of a fixed deposit itself inasmuch as going by the admitted facts of this case, the interest chargeable on the fixed deposit itself is linked to the interest accruing and arising from the fixed deposit. On these facts, in order to protect the interest earnings from fixed deposits and to meet her financial needs, 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 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 and thus preserved the source of earning. The expenditure so incurred, is an expenditure incurred whol....
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.... interest has been incurred wholly and exclusively for the purpose of making or earning such income as prescribed u/s 57(iii) of the IT Act, 1961. Interest paid on loans raised against FDRs for giving the money to son cannot be said to be an expenditure incurred wholly and exclusively for the purpose of making or earning such income as prescribed u/s 57(iii) of the IT Act, 1961. Hence, the explanation filed by the assessee with regard to deduction of Rs. 28,93,281/- claimed u/s 57 (iii) of the I.T. Act, 1961 out of interest income declared at Rs. 45,49,341/- is hereby rejected. Accordingly, an addition of Rs. 28,93,281/- is made to the income of the assessee under the head income from other sources." 4. Being aggrieved the assessee carried the matter to the Ld. CIT(A) and submitted as under: " In this regard it is submitted that assesse filed return declaring income of Rs. 1320390/-. Assessee's only source of income is interest from bank FDRs, Interest on saving bank account or interest on securities. Assessee has invested in fixed deposits receipts in bank in earlier years and is earning interest thereon as below: Date of purchase of FDR Rate of interest at which invested....
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....s of appeal at the time of hearing. Ground no. 1 to 3 raised by the assessee are in respect of disallowance of interest of Rs. 28,93,281. Assessee has been receiving interest on various FDR and the same was being credited to the saving bank account of the assessee. Assessee has raised two loans of Rs. 180 Lacs and of Rs. 102 Lacs against security of the FDR's of the assessee as these funds were required for the need of the family, for the purposes of business being handled by her sons. It may be seen that assessee has interest earning apparatus in the shape of FDR's in the bank on which she was receiving interest @ 9.15% Per annum and interest on each of the FDR's was being credited to the saving bank account of the assessee. Assessee claimed deduction of the interest paid under section 57(iii) of IT Act. Assessing officer however relied on the judgment in the case of CIT Vs. VP Gopinathan 248 ITR 449. However the ratio laid down in that case is not applicable as in that case, assessee before the Tribunal had made it clear that the assessee's case did not rest upon the provisions of Section 57(iii) of the Act. In other words, it was not the contention of the assessee, that he....
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.... Option 1: assessee could have prematurely en-cashed the FDR and in that case she was required to pay back the interest in the shape of penalty for premature closing of FDR's. Option2: Assessee could have raised loans against the FDR's and paid interest on the loan raised against. In the first case the income earning apparatus would have ceased to exit at the time of premature closing of FDR and assessee would not have earned any income on such closed FDR. Further assessee was also liable to pay bank the penal charges for premature closing the FDR. In the second option assessee raised loans against security of her own FDR so as to save her income earning apparatus but had to pay interest on the demand loan. Assessee chose the second option so as to save her income earning apparatus and claim the interest paid against the interest earned on FDR's as deduction under section 57(iii) of ITA Act. Section 57 of the IT Act reads as under: Section 57: Deductions:- The income chargeable under the head "Income from other sources" shall be computed after making the following deductions, namely: (iii) any other expenditure (not being in the nature of capital expenditure) laid ....
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....es below and further submitted that the assessee invested in FDR's in bank in earlier years and was earning interest @ 9.15% per annum. Against the said FDR valuing Rs. 4,42,50,000/-, the assessee raised the loan of Rs. 180.89 lacs @ 10.15% amounting to Rs. 1994713/-, another loan of Rs. 102.55 lacs was raised, on the said loan interest of Rs. 898568/- was paid. It was further submitted that as per the policy of the bank if the FDR were to be encashed prematurely, then there was a penalty @ 1.5% by the bank. Therefore, the assessee by getting the FDR premature, would have loosed 1½ % interest which worked out to Rs. 51275/-. It was contended that the assessee received interest of Rs. 45,49,341/- on the FDR and paid sum of Rs. 28,93,281/- in respect of loan raised against the FDR and claimed the payment of interest against the interest received, as a deduction under section 57(iii) of the Act. It was stated that in case the FDR was to be prematurely encashed then the income earning apparatus would have seized to exist and the assessee was not have earned any income on said closed FDR and was liable to pay the bank the penal charges for premature closing of the FDR. It was co....