2015 (8) TMI 279 - HC - Income Tax

Accruals of interest and rental income returned as income from other sources as provided under Section 56 - since the subsidiary company was incurring huge losses, the assessee had written off interest and lease charges and claimed its deduction in the assessment year 2008-209 and as AO considered the said claim under Section 57(iii) of the Act and disallowed the deduction - Held that - The income in question was returned as income from other sources. When an income has been returned as income from other sources, one of the heads of income provided in Section 40, deduction can also be only under the provisions in the same head of income. Therefore, in respect of income from other sources, deduction of income is permissible only under Section 57, sub section (iii) of which provides for deduction of any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly or exclusively for the purpose of making or earning such income. Evidently, this provision is not attracted in the case in question and, therefore, the Assessing Officer has rightly declined the claims of the assessee.- Decided against assessee. Entitlement to claim deduction under Section 36(vii) - Held that - In so far as this claim of the appellant is concerned, first of all, such a contention was not raised before any of the lower authorities. Not only that, as rightly pointed out by the learned Senior Counsel for the Revenue deduction under Section 36 is permissible only in so far as the income under the head profits and gains of business or profession . Therefore, this claim of the assessee also cannot be sustained. We do not find anything illegal in the conclusions of the Tribunal. - Decided against assessee.

Summary

Issues:
1. Deduction of interest and lease rentals written off by the assessee.
2. Applicability of Section 57(iii) and Section 36(vii) of the Income Tax Act.
3. Interpretation of provisions for deduction under different heads of income.

Analysis:
The case involved an appeal by the assessee against the order of the Income Tax Appellate Tribunal disallowing the deduction claimed for interest and lease rentals written off in the assessment year 2008-2009. The assessee, a company, had given loans and leased out machineries to a subsidiary company, expecting interest and rental income. The returns filed had treated the accruals of interest and rental income as income from other sources under Section 56 of the Income Tax Act.

The Assessing Officer disallowed the deduction claimed under Section 57(iii) of the Act, which allows deductions for expenditure laid out for earning such income. The Commissioner had initially allowed the claim, but the Tribunal restored the Assessing Officer's order, leading to the current appeal. The main question of law was whether the Tribunal was correct in confirming the disallowance of the interest and lease rentals written off.

The High Court analyzed the provisions of Section 57(iii) and Section 36(vii) to determine the eligibility of the assessee for the claimed deductions. It was established that for income from other sources, deductions could only be claimed under Section 57, and not under Section 36 meant for profits and gains of business or profession. The appellant's argument for deduction under Section 36(vii) for bad debts written off was dismissed as it was not raised before lower authorities and was not applicable to income from other sources.

Ultimately, the Court upheld the Tribunal's decision, stating that the Assessing Officer had rightly declined the claims of the assessee as the provisions of Section 57(iii) were not applicable to the case. The appeal was dismissed, concluding that the deductions claimed by the assessee for interest and lease rentals written off could not be sustained under the Income Tax Act.