1993 (3) TMI 154 - AT - Income Tax

Summary

Issues:
1. Allowance of deduction for expenses incurred in earning interest income.

The case involved an individual deriving income from house property and bank interest. The individual claimed a deduction of Rs. 17,643 for expenses incurred in earning interest income from bank deposits. The Income Tax Officer (ITO) rejected the claim, stating that no expenditure was required to earn the interest income as it was credited by the bank, and no documentary evidence was provided. The individual appealed to the DC (Appeals), arguing that she had to visit the bank frequently to ensure the interest was credited, incurring taxi fare expenses. The DC (Appeals) allowed a deduction of Rs. 15,000, considering the visits to the bank as necessary expenses. The revenue appealed to the Tribunal, challenging the allowance of the deduction. The Tribunal held that the expenses incurred for visiting the bank did not have a nexus with earning the income, as the interest was credited by the bank without any action from the individual. Therefore, the deduction was disallowed, and the ITO's decision was upheld.

In this case, the main issue was whether the individual could claim a deduction for expenses incurred in earning interest income from bank deposits. The individual argued that she had to visit the bank frequently to ensure the interest was credited, incurring taxi fare expenses. The DC (Appeals) allowed a deduction of Rs. 15,000, considering the visits to the bank as necessary expenses. However, the Tribunal held that the expenses incurred for visiting the bank did not have a nexus with earning the income, as the interest was credited by the bank without any action from the individual. The Tribunal noted that the income accrues when the interest is credited to the bank account, and the visits to verify the entries did not qualify as deductible expenses under section 57 of the Income-tax Act, 1961. As a result, the Tribunal set aside the DC (Appeals) decision and upheld the ITO's decision to disallow the deduction.