TaxTMI 
TaxTMI 
2022 (7) TMI 376
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....ra 34 of the order in ITA No. 676/BANG12021 dated 14/0212022, as under:- "34. In view of the above, in our opinion, unless funds are borrowed for making deposit to earn interest income, such interest paid on borrowings cannot be allowed as deduction in the computation of income from other sources, which in this case, is interest earned from mutual funds. In the facts stated above, there is no doubt that the funds borrowed from HSBC Bank was never used for investment to earn interest income. On the other hand, it has been used to make investment in CGDA Scheme and interest paid on borrowings cannot be set off against interest earned from mutual funds, as borrowed fund is not converted into mutual fund which yielded interest income. Therefore, in our opinion, there is no merit in the arguments of the assessee that interest incurred is to be allowed as a deduction u/s. 57(iii) of the Act out of interest earned from mutual funds which was taxed under the head 'income from other sources'. Accordingly, the grounds of the assessee on this issue are rejected the appeal is dismissed." (emphasis supplied) 3. It is submitted that the Bench has erred in observing that the Petiti....
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....en earned and offered to tax under the head "Other Sources". 7. Furthermore, in the order passed by the Bench, reliance has been placed on the judgement of the Hon'ble Karnataka High Court in the case of Karnataka Forest Plantations Corporation Limited reported in 156 ITR 275 [Kar.], which was neither cited by the Petitioner or the learned DR. It is submitted that the said judgement cited by the Bench is distinguishable and wholly inapplicable to the case of the Petitioner. In the said case, the funds were borrowed for business purposes. The said borrowed funds were kept in short term deposits from which interest was earned. The Hon'ble Court held that the provisions of section 57[iii] were not applicable since the funds were not borrowed for earning interest income. 8. In the Petitioner's case, it is submitted that there is no dispute that the funds were borrowed for making investments in the CGDA scheme. Interest earned on the deposits therefore has an intimate and proximate connection with the interest paid on borrowed funds. Hence, provisions of section 57[iii] of the Act are clearly applicable to the case of the Petitioner. On this aspect of the matter, the H....
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....as deduction in the computation of income from other sources, which in this case, is interest earned from mutual funds. In the facts stated above, there is no doubt that the funds borrowed from HSBC Bank was never used for investment to earn interest income. On the other hand, it has been used to make investment in CGDA Scheme and interest paid on borrowings cannot be set off against interest earned from mutual funds, as borrowed fund is not converted into mutual fund which yielded interest income. Therefore, in our opinion, there is no merit in the arguments of the assessee that interest incurred is to be allowed as a deduction u/s. 57(iii) of the Act out of interest earned from mutual funds which was taxed under the head 'income from other sources'. Accordingly, the grounds of the assessee on this issue are rejected the appeal is dismissed." 13. On going through the argument of the assessee's ld. counsel, we find that there are certain errors in the orders of the Tribunal which is required to be corrected. Accordingly, para 34 of the order of the Tribunal in ITA No.676 & 677/Bang/2021 is modified and substituted to read as under:- "34. In view of the above, in our opi....
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....her income referred to in section 56. The deduction u/s. 56 is allowable only if they are within one or other clauses enumerated in that section, not otherwise. 32. In the present case, the borrowings were made by the assessee to deposit in the CGDA Scheme so as to avail the benefit u/s. 54F of the Act. The assessee has paid interest on the loan availed for the purpose of making investment in CGDA scheme. The assessee used the sale consideration receive on sale of shares in mutual funds and earned interest out of it. The assessee wants to set off the interest paid on loan amount out of interest income received from mutual funds. As seen from the above, the borrowings are not made to make investment in the mutual fund and earn interest therefrom. The borrowed amount was used to make investment in CGDA scheme. The interest income was received by the assessee from mutual funds only was totally independent of the borrowings. The interest expenditure is incurred not for the purpose of earning income, but it is on the borrowings used for investment in CGDA scheme. At this stage, it is appropriate to place reliance on the case of Karnataka Forest Plantations Corpn. Ltd. v. CIT, 1....
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....yable on the same would be an allowable deduction in calculating the total income of the assessee-company. What difference does it make if the holder of the debentures is a shareholder? There appears to be none in principle in view of the fact that no suggestion of fraud is made in respect of the transaction which is carried out between the company and the Administrator and which has been sanctioned by the Court. If the debentures had been paid for in cash by the same party, no objection could have been taken to allowing the interest amount to be deducted. In principle, there appears to us no difference, if instead of paying in cash the payment of the price is in the share of giving over shares of the company, when the transaction is not challenged on the ground of fraud and is approved by the Court in the reorganisation of the capital of the company. In our opinion, therefore, the ground on which the Income-tax Appellate Tribunal and the High Court disallowed the claim of the assessee is not sound." (p. 7) What was paid by the assessee in that case was interest or an expenditure in respect of its income and it was on that basis, the Supreme Court found that the case attra....
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.... be dismissed. But, before doing that, I deem it proper to suggest to the Government to examine the feasibility of granting relief by amending the Act." 33. Further in the case of Smt. Padmavathi Jaikrishna v. Addl. CIT, 166 ITR 176 (SC), it was held as follows:- "7. In CIT v. Rajendra Prasad Moody [1978] 115 ITR 519 (SC), this Court observed : "The determination of the question before us turns on the true interpretation of section 57(iii) and it would, therefore, be convenient to refer to that section, but before we do so, we may point out that section 57(iii) occurs in a fasciculus of sections under the heading, 'F-Income from other sources'. Section 56, which is the first in this group of sections, enacts in sub-section (1) that income of every kind which is not chargeable to tax under any of the heads specified in section 14, items A to E shall be chargeable to tax under the head 'Income from other sources' and subsection (2) includes in such income various items, one of which is 'dividends'. Dividend on shares is thus income chargeable under the head 'Income from other sources'. Section 57 provides for certain deductio....