1987 (7) TMI 73

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....apital of Rs. 2,71,000 represented by the fixed deposits stood reduced by the amount of loans of Rs. 1,51,818 taken by the assessee on the security of the said fixed deposits and in not holding that the interest paid on the reduced capital alone was taxable under section 56 of the Act ? 2. Whether the learned Tribunal is correct in invoking the provisions of section 57 of the Act when the assessee's interest-earning fixed deposits stood reduced by the amount of loans taken on the security thereof and the interest on reduced amount only is taxable under section 56 of the Act? " In the return relating to the assessment year 1970-71, the assessee declared income by way of interest to the extent of Rs. 20,902 obtained from various fixed d....

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....ore, the provisions of clause (iii) of section 57 of the Act are fully applicable in the present case. He relied upon CIT v. H. H. Maharani Shri Vijaykuverba Saheb [1975] 100 ITR 67 (Bom), Seth R. Dalmia v. CIT [1977] 110 ITR 644 (SC) and State Bank of Travancore v. CIT [1986] 158 ITR 102 (SC). In reply, it has been contended by learned standing counsel for the Department that the said loans were admittedly taken for constructing house and not for earning interest, that interest was not paid wholly and exclusively for the purpose of earning interest on fixed deposits, that construction of the said house was not in any way connected with the income arising out of the said fixed deposits and as such clause (iii) of section 57 of the Act is....

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.... is entirely irrelevant. What we are concerned with is the actual action on the part of the assessee and not of the action she could have taken under the circumstances. If she had chosen to purchase this jewellery by withdrawing money from the fixed deposit, then undoubtedly her income would have been reduced and to that extent the tax on that income would also be reduced. But because she chose to borrow money to buy the jewellery, it does not establish the purpose, namely, that she borrowed money in order to maintain or preserve the fixed deposit or help her to earn interest." It has further been observed at page 550 as under: " If an assessee has no option except to incur an expenditure in order to make the earning of an income poss....