TaxTMI 
TaxTMI 
1978 (7) TMI 40
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....ected with the transaction of paying interest ? (2) Whether, on the facts and in the circumstances of the case, it was rightly held that the assessee was entitled to deduction of Rs. 1,77,741 against the interest income of Rs. 86,910 ? " The facts are within a narrow compass and may be briefly stated : The assessee is a limited company and we are concerned with the assessment year 1963-64, the accounting year being the year ended 31st March, 1963. For this period the assessee showed a loss of Rs. 6,921 and this was on the footing of claiming certain expenses incurred by the assessee during the year. The ITO, however, rejected the assessee's claim on the ground that the business of the assessee was that of manufacturing wire ropes wh....
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.... the head " Other sources ". He accordingly rejected the appeal on this point. The assessee carried the matter further to the Tribunal. Before the Tribunal it was urged on behalf of the assessee that the assessee had raised the share capital of about Rs. 53 lakhs and wanted to make payment for import of steel wire rope plant and machinery and other equipment. It was submitted that because of the restrictions imposed by the Govt. of India to remit capital outside India, the assessee had to borrow large amounts and pay interest thereon. The capital raised by the assessee was, therefore, kept with the bank in fixed deposit which earned interest. It was submitted that if there had been no restrictions on remittance of capital outside India, th....
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....f the assessee before the Tribunal that the assessee was compelled to seek the loan by reason of the restrictions on remittance of foreign exchange imposed by the Govt. of India. The total cost of the industrial undertaking is estimated in the aggregate figure of Rs. 103.85 lakhs which sum includes the share capital in the amount of Rs. 59.85 lakhs and the foreign exchange loan from the I.C.I.C.I. Ld in the amount of Rs. 30 lakhs. The rest is to be made up of deposits and bank borrowings. It was further submitted by Mr. Joshi that the interest earned by the assessee by reason of its fixed deposits kept with banks was chargeable as income from other sources under s. 57 of the I.T. Act, 1961, and that only the expenditure laid out or expended....
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....y co-relationship or interdependence could be concluded and, further, according to him, it could not be held that interest had been paid to I.C.I.C.I. Ltd. wholly and exclusively to earn interest from the banks by keeping fixed deposits or short-term deposits with the banks. Before us, Mr. Palkhivala on behalf, of the assessee had laid stress principally on the second argument advanced on behalf of the assessee before the Tribunal. According to him, if the agreement and the subsequent correspondence between the assessee, his bankers, viz., the Bank of India and Dena Bank, and the I.C.I.C.I. Ltd. are perused, the proper conclusion must be that the transaction of earning interest and paying interest is so closely integrated that it must be r....
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....he correspondence would show that at least some of the amount of the share capital was kept up to July, 1962, as and by way of giving security to the I.C.I.C.I. though the initial correspondence is surprisingly not annexed. Between March and july, 1962, there is sufficient correspondence to indicate that about Rs. 20 lakhs or so were kept in fixed deposits with the two banks concerned to the order of the I.C.I.C.I. Ltd. There are also one or two letters which would show that payments to foreign suppliers of machinery and plant were directly made by the I.C.I.C.I. Ltd, (as required by the assessee). This, however, is a common feature of such foreign exchange loans where payments are to be made in foreign exchange ; in such cases the payment ....