1983 (9) TMI 166 - AT - Income Tax

Summary

Issues Involved:
1. Condonation of delay in filing the appeal by the assessee.
2. Assessment of interest income in the hands of the assessee-individual versus HUF status.
3. Deduction of interest paid to the bank from the interest income on fixed deposits.

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing the Appeal by the Assessee:
The assessee's appeal (IT Appeal No. 341 (Mad.) of 1983) was barred by limitation by one day. The delay was attributed to the pressure of work in the office of the counsel. After reviewing the application for condonation of delay and hearing the learned departmental representative, the tribunal condoned the delay and admitted the appeal.

2. Assessment of Interest Income in the Hands of the Assessee-Individual versus HUF Status:
For the assessment year 1978-79, the assessee filed the return of income showing a status of 'individual' with a returned income of Rs. 45,423. The assessee claimed that the interest income belonged to a HUF and should not be assessed in her hands. The AAC observed that the assessee and her husband, both doctors, had earned and deposited amounts in joint names in banks. Upon her husband's demise, all deposits were transferred to the assessee's name. The AAC noted that the assessee was the legatee under a will executed by her husband, Dr. S. Kannan, and examined whether the interest should be excluded from her assessment as HUF property. The AAC concluded that the late Dr. S. Kannan did not impress his individual property with the character of joint family property and upheld the assessment of interest income in the hands of the assessee-individual.

In the appeal before the tribunal, the assessee contended that the correct status was that of a HUF and that the fixed deposits belonging to her husband should be considered HUF property. The tribunal referred to the Hindu Gains of Learning Act, 1930, which states that gains of learning are the exclusive property of the individual who acquired them, even if the learning was imparted with the aid of joint family funds. The tribunal concluded that the savings of the husband were his individual income and devolved on the assessee in her individual capacity. Thus, the assessment of interest income in the hands of the assessee-individual was upheld.

3. Deduction of Interest Paid to the Bank from the Interest Income on Fixed Deposits:
The assessee claimed a deduction of Rs. 18,857, representing interest paid to the bank on an overdraft against fixed deposits. The AAC accepted the assessee's contention that the interest paid reduced the net interest earned and allowed the deduction. However, the revenue contended that the receipt of interest on fixed deposits and the payment of interest on overdrafts were separate transactions, and the assessee should be held to have received the full interest income of Rs. 55,500.

The tribunal examined the nature of the transactions and concluded that legally, the income from fixed deposits accrued to the assessee in full, and the payment of interest on the overdraft was a separate and independent transaction. The tribunal held that the interest payment could not be allowed as a deduction under section 57(iii) of the Income-tax Act, 1961, as it was not laid out or expended wholly and exclusively for the purpose of earning the interest income. The tribunal set aside the AAC's finding and held that no deduction was permissible for the amount of Rs. 18,857.

Conclusion:
The appeal of the assessee was dismissed, and the appeal of the revenue was allowed.