2009 (1) TMI 261 - HC - Income Tax

Deduction u/s 57(iii) the term purpose income form other sources - assessee has adopted a policy of extending loans to its employees. These loans are extended to enable the employees to purchase houses and motor vehicles. assessee charges interest on the loans extended to the employees. - The issue - whether the interest income derived by the respondent-assessee can be set off as against the interest paid by the respondent-assessee for taking a loan from the NABARD? held that - the term purpose referred to in clause (iii) of section 57 of the 1961 Act, for the present controversy, is relatable to the activity of the respondent-assessee in earning income by extending loans to its employees. In so far as the deduction conceived of under clause (iii) of section 57 of the 1961 Act is concerned, the same is relatable only to expenditure incurred for the said purpose deduction of expenditure of interest paid to NABARD not allowed.

Summary

The Punjab and Haryana High Court judgment of 2009, delivered by J. S. KHEHAR and NAWAB SINGH JJ, involved an income tax matter concerning the respondent, an entity engaged in lending loans to its employees. The respondent charged interest on these loans, and the issue in question was whether the interest income derived from these loans could be set off against the interest paid by the respondent for taking a loan from NABARD. The court found that the interest income from the loans was considered income from other sources under section 57 of the 1961 Act. The court concluded that the respondent could not set off the interest income against the interest paid to NABARD. The substantial question of law raised was whether the interest paid by the Corporation was eligible for deduction under section 57(iii) against the interest on advances received, without a direct nexus between the amounts for interest payment and interest received. The court ruled in favor of the Revenue, disallowing the set off of interest income against the interest paid to NABARD. The judgment highlights the importance of understanding the purpose and scope of income and deductions under the 1961 Act. The case serves as a reminder to carefully consider tax implications when dealing with income from different sources.