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TMI Blog1983 (9) TMI 166X X X X Extracts X X X X X X X X Extracts X X X X ..... d deduction of Rs. 18,857 which represented interest paid to the bank. The ITO did not allow the deduction claimed stating that a similar claim made in the earlier year was negatived. He, therefore, added back the amount of Rs. 18,857. 4. In appeal, the assessee raised a contention for the first time that the interest income really belonged to a HUF and, therefore, should not have been assessed in her hands. The AAC observed that the assessee and her husband were both doctors. They were practising at Flint, Michigan, USA. Amounts were earned by them and deposited in joint names in banks. When they came back to India, the amounts were transferred and deposited in Indian banks in joint names. The assessee's husband passed away on 9-11-1975. Subsequently, all the deposits were transferred to the name of the assessee. In the estate duty assessment made in relation to the property left behind by late Dr. S. Kannan, it was claimed that half the deposits by that time in Indian banks alone, belonged to the deceased and the other half belonged to the assessee. The assessee, it was mentioned, clarified before the AAC that the claim of HUF status was being claimed only in respect of 50 per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required money and for this purpose, borrowed moneys on the security of these fixed deposits, on which the interest was paid. It must be remembered that this borrowal was effected only against the assessee's own deposits, or in other words, the effect of interest was reduced, and the consequent reduction in income is reflected as separate transaction, as if interest was paid to bank. Thus, what is exhibited as interest paid to bank truly represents the interest that was not earned by the appellant at all. To put it differently, the income earned by the appellant was only the net interest and not gross. If the amounts so withdrawn from bank for which interest was paid, were never kept in fixed deposit at all initially but were kept separately and utilised, the appellant would be assessable only in respect of the interest on the balance of the deposits, for that alone would earn the interest. If supposing the appellant had kept all her moneys in current account, instead of in fixed deposit and the appellant had drawn certain moneys for her use from this current account, then the amount of interest that would be credited to her account would be on the net deposits and in that case he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e received his salary for rendering his personal service. But all that was made possible by the use of the joint family funds which enabled him to acquire the necessary qualification and that fact made his earnings part of the joint family properties . . ." The submission of the learned counsel is that these observations occurred in the judgment delivered in May 1957, that is several years after the Hindu Gains of Learning Act, 1930 ('the 1930 Act') came into effect and, hence, an inference could be drawn that where a person was educated with funds belonging to the HUF, his subsequent earnings would be considered to be joint family property. The learned departmental representative, on the other hand, opposed the plea and submitted that whatever income was earned by the late Dr. S. Kannan, it was because of his personal relationship with particular patients and, hence, there was no question of any portion of the income belonging to the HUF. 7. We have considered the rival submissions. The observations relied upon by the learned counsel only contain a reference to the decision of the Privy Council to the effect that there could not be a valid distinction between a direct user of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e affidavit filed by the assessee before the Assistant Controller of Estate Duty and which was accepted by him for holding that 50 per cent of the deposits alone belonged to the assessee's late husband. "I, Dr. Sarada Kannan, wife, of the late Dr. S. Kannan, Hindu, Doctor aged 36, 27 Perumal West Car Street, Tirunelveli Junction, now doing DGO Government Maternity Hospital, Egmore, Madras-8, do solemnly and sincerely affirm and state as follows : I was married to Dr. S. Kannan on 18-6-1967. My husband was a qualified doctor and also passed his MD. He was a specialist in Radiology. I am also a qualified doctor. We were practising together in USA at Flint. We moved to Chicago and again came back to Flint in Michigan State. My husband was not keeping good health. We returned to India on 7-8-1975. My husband expired on 9-11-1975 at Tirunelveli Junction. While we were in USA we opened either or survivor account with the Citizen and Commercial Savings Bank, Flint and also in Ganesee Bank. No regular accounts were maintained by us. My husband was meeting all the expenses and was depositing his savings in banks. I was depositing my entire earnings in banks. The deposits in banks, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ual income. We, therefore, come to the conclusion that the savings of the husband were his individual income which devolved on the assessee in terms of his will dated 21-2-1975 in her individual capacity. The savings do not represent the funds of the assessee and her minor daughter in the capacity as HUF. We have, therefore, to hold that the assessment of the interest income in the hands of the assessee-individual is in order. 8. Coming to the appeal of the revenue, the contention raised is that the AAC erred in holding that the amount of Rs. 18,857 did not represent income of the assessee. The learned departmental representative submitted that receipt of income on fixed deposits was out of one set of transaction and payment of interest on overdrafts was a result of another set of transaction and, therefore, the assessee should be held to have received the full interest income of Rs. 55,500 and the payment of interest of Rs. 18,857 would be an admissible deduction only if it was permissible under law and it was not so permissible. The learned counsel for the assessee, on the other hand, relied upon the findings of the AAC which we have extracted earlier and submitted that the tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... withdrawn and although the banker may not allow interest after the deposit has matured for payment, he does not become a trustee for the customer of the funds so lying with him [Pearce v. Creswick (1843), 2 Hare 286 and Official Assignee of Madras v. Smith En. 1908 ILR 32 (Mad.) 68, followed in Subramaniam v. Kadiresan 39 (Mad.) 1081]. A third party has no right to claim the money deposited with a banker by giving notice to him. Such a notice does not create any liability on the part of the banker." Thereafter, it is stated that : "In order to oblige their customers, bankers occasionally allow them to withdraw their fixed deposits before their due dates. In such cases, either the customer foregoes the interest accrued on deposit, or he borrows the amount required against the security of his fixed deposit at a rate of interest which is generally two to two and half per cent higher than the rate allowed on the deposit. When doing so the banker requires the customer to discharge the deposit receipt. In the latter case, the banker's advance is fully secured, as there can hardly be any security better than the amount due from the banker to the customer." In a case where a fixed d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest paid to the bank. But, legally, the income from the fixed deposits accrues to the assessee in full, and the payment in respect of overdraft is a subsequent and independent payment and in law, we would not be justified in holding that the interest of Rs. 18,857 was never received by the assessee. 10. The only question that survives is whether the interest payment can be allowed as a deduction. The loan in the present case was taken for making payments of estate duty and the interest was paid in respect of such loan. The interest income has been brought to tax under the head 'Income from other sources'. The interest payment would be an admissible deduction only if laid out or expended wholly and exclusively for the purpose of making of earning such income [section 57(iii) of the Income-tax Act, 1961]. The interest paid in the present case is not for earning the interest income. We may state that in the case of CIT v. Malayalam Plantations Ltd. [1964] 53 ITR 140 (SC), a question arose whether payment of estate duty in the case of a non-resident company on the death of shareholders not domiciled in India could be considered to be a payment for the purposes of business and the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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