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2024 (3) TMI 1067 - AT - Income TaxDeduction of interest expenditure incurred on borrowed funds u/s 57 - Interest incurred on borrowed funds utilized for making investment in shares in company of Singapore - expenditure allowable u/s. 57 or not? - HELD THAT - As not disputed that the assessee s investment in M/s. Dolphin Overseas Private Limited, Singapore is for the purpose of earning income in the future periods. Revenue Authorities also did not bring on record that the investment was made by the assessee otherwise than for the purpose of making an income. We observed that section 57(iii) is clear and has to be construed according to its natural meaning. It should not be given a narrowed meaning and the interpretation of section 57(iii) cannot be held to be conditional upon making or earning of the income. As relying on SRI SAYTASAI PROPERTIES INVESTMENT PVT. LTD. case 2014 (2) TMI 796 - CALCUTTA HIGH COURT we are of the considered view that the assessee is eligible to claim deduction of interest expenditure incurred on borrowed funds utilized for making investment in shares of M/s. Dolphin Overseas Private Limited, Singapore as per the provisions of u/s. 57 of the Act. Appeal filed by the assessee is allowed.
Issues involved: Appeal against the order of Ld. Commissioner of Income Tax (Appeals) regarding disallowance of interest on loan under section 143(3) of the Income Tax Act, 1961 for the AY 2013-14.
Summary: Issue 1: The assessee appealed against the order of Ld. CIT(A)-NFAC sustaining the disallowance of interest on loan from Bajaj Financial Services under section 143(3) of the Act. The assessee contended that the interest paid on the loan was for capital investment and should be eligible for deduction under 'income from other sources' as it was laid out for future income generation. The AR relied on a judgment of the Calcutta High Court to support this argument. On the other hand, the Departmental Representative argued that since the investment was capital in nature, the interest paid on the loan should also be considered capital and not allowable under section 57 of the Act. After considering both sides and the relevant legal provisions, the Tribunal examined whether the interest incurred on borrowed funds for investment in shares was a proper expenditure under section 57 of the Act. The Tribunal referenced the Calcutta High Court judgment, which emphasized that the purpose of the investment was to generate income in the future, and that disallowing the expenditure solely because the investment was not for earning dividends was incorrect. The Tribunal found that the investment in this case was for future income and, therefore, the interest expenditure was allowable under section 57. Based on this analysis and following the Calcutta High Court decision, the Tribunal allowed the grounds raised by the assessee and ruled in favor of allowing the deduction for interest expenditure incurred on borrowed funds for the investment in shares. As a result, the appeal filed by the assessee was allowed, and the decision was pronounced in open court on 21st March 2024.
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