1993 (11) TMI 20 - HC - Income Tax

Deposit In Bank, Expenditure Incurred, Fixed Deposit, Income Tax Act, Mutual Concern, Other Sources

Summary

Issues involved:
1. Taxability of interest income received by the assessee in assessment years 1975-76 and 1976-77 on deposits made with banks under section 56 of the Income-tax Act, 1961.
2. Deductibility of expenditure laid out or expended wholly and exclusively for the purpose of earning the interest income under section 57(iii) of the Act.

Taxability of Interest Income:
The High Court considered the question of whether the interest income received by the assessee in the assessment years 1975-76 and 1976-77 on deposits made with banks was taxable as its income under section 56 of the Income-tax Act, 1961. The court referred to a previous decision in the case of Sports Club of Gujarat Ltd. v. CIT where it was established that the principle of mutuality did not apply to the assessee-club's income from interest. The court emphasized that the income derived from investments such as fixed deposits with banks, dividends, or rent, was not by way of contribution from the members of the club. Therefore, the court concluded that the income received by the assessee-club by way of interest is exigible to tax.

Deductibility of Expenditure:
Regarding the deductibility of expenditure under section 57(iii) of the Act, the court held that any other expenditure laid out or expended wholly and exclusively for the purpose of making or earning such income should be deducted while computing the income from other sources. Therefore, the court answered the second part of the question in the affirmative, in favor of the Revenue and against the assessee.

In conclusion, the High Court of GUJARAT decided that the interest income received by the assessee in the assessment years 1975-76 and 1976-77 on deposits made with banks is taxable under section 56 of the Income-tax Act, 1961. Additionally, the court clarified that any expenditure laid out or expended wholly and exclusively for the purpose of earning such income should be deducted under section 57(iii) of the Act. The reference was disposed of accordingly with no order as to costs.