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TMI Blog1990 (7) TMI 161X X X X Extracts X X X X X X X X Extracts X X X X ..... en on the security of such deposits. To be more specific, the assessee received interest on his fixed deposits with the bank in a sum of Rs. 1,17,444 and had paid interest amounting to Rs. 90,410 on the loans taken on the security of such fixed deposits. The assessee sought to offer the net amount of interest, namely, Rs. 27,034, whereas the Income-tax Officer took the gross receipt of Rs. 1,17,444 as income from other sources. On appeal, the CIT (Appeals) held that what is envisaged as a deduction u/s 57(iii) is only the expenditure incurred in earning the income and, therefore, the assessee is not entitled to set off the interest payment against the interest receipt. The assessee is on appeal. 3. Shri K.B. Menon, the learned counsel for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... real income what is relevant is only the net amount of interest earned by the assessee by depositing the amount with the bank with a provision loan to be taken on the same. Hence, it is only the net amount of interest that is exigible for tax. He relied on the following decisions---CIT v. Andhra Farm Chemicals Corpn. [1988] 171 ITR 660/40 Taxman 143 (AP), Indian Overseas Bank v. CIT [1990] 183 ITR 200 (Mad.), Kewal Chand Bagri v. CIT [1990] 183 ITR 207 (Cal.) and CIT v. Kerala State Industrial Development Corpn. Ltd. (No.2) [1990] 182 ITR 67 (Ker.). 4. Shri A.D. Menon, the learned departmental representative, submitted that the decision of the Andhra Pradesh High Court in Andhra Farm Chemicals Corpn.'s case would not apply to the facts o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we uphold the contention of Shri K.B. Menon, the learned counsel for the assessee. Normally we are bound by the decision of the Cochin Bench of the Tribunal cited by the revenue which is in its favour. However, having regard to the contention of Shri K.B. Menon that the decision of the Cochin Bench was rendered without regard to the decision of the Andhra Pradesh High Court, which was by a Superior Court than that of the Tribunal, we hold that the assessee is entitled to succeed in his claims. In Andhra Farm Chemicals Corpn.'s case the assessee, a subsidiary company, had certain monies lying with it and with a view not to keep the said monies idle, it deposited the same with its holding company and in the meanwhile the assessee required so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is no scope for applying section 57(iii). " In the case before us also though technically the act of making deposit and the act of borrowing money on such deposit are two different acts, they cannot be viewed as representing two different transactions. The reason is that firstly, the loan is granted because there was a deposit in favour of the assessee, secondly, the loan is measured along with the quantum of deposit held thirdly, the banker has a right to adjust the deposit against the loan in case of default on the part of the assessee to clear the loans and lastly unlike other secured loans the rate of interest on the loans on fixed deposits is a differential rate in the sense that it is just above 1% to 2% than the rate allowed on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l. In the light of the above decision, we are bound to follow the Andhra Pradesh High Court decision which is the only decision available as on date as no other decision of any other High Court was cited before us. Therefore, we reject the contention of the learned departmental representative. 9. The learned departmental representative referred to the decision of the Supreme Court in the case of Keshavji Ravji Co. v. CIT [1990] 183 ITR 1, and contended that it was only in bankruptcy proceeding the principle of set off was statutorily recognised and in the absence of any such statutory recognition it was his submission that no set off can be given as between interest payment and the interest receipt. We have carefully considered the pass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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