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TMI Blog2014 (7) TMI 867X X X X Extracts X X X X X X X X Extracts X X X X ..... her financial needs, when an assessee raises a loan against the fixed deposits, so as to keep the source of earning intact, the expenditure so incurred in wholly and exclusively to earn the fixed deposit interest income - assessee could have gone for premature encashment of bank deposits, and thus ended the source of income itself, as well, but instead of doing so, she resorted to borrowings against the fixed deposit and thus preserved the source of earning - expenditure incurred is an expenditure incurred wholly and exclusively for earning from interest on fixed deposits - in the case of a business assessee, and in a situation in which the borrowings against fixed deposits were resorted to for use in business, consideration for end use of funds so borrowed would be relevant because the interest deduction is claimed as a business deduction u/s 36(1)(iii) - the interest on borrowings against the fixed deposits could be said to protect the interest income from fixed deposit interest and incurred wholly and exclusively for the purposes of earning income –Decided in favour of Assessee. - I.T.A. No.: 176/Agra/2013 - - - Dated:- 18-7-2014 - Pramod Kumar and Joginder Singh, JJ. F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... position. 6. We find that here is a case in which the assessee has specifically objected to the adoption of stamp duty valuation rate. The mere fact that the appellant has not challenged the stamp duty valuation cannot be put against the assessee. The authority for the this proposition is contained in, Hon'ble jurisdictional High Court's judgment, in the case of CIT v. Chandra Narain Chaudhuri ([2013] 38 taxmann.com 275 (Allahabad), wherein Their Lordships have observed that, The question as to whether the assessee filed any objections before the Stamp Valuation Authority to dispute the valuation, or filed appeal or revision or made reference before any authority, court or the High Court under sub section (2) (b) of Section 50 C of the Act is not of any relevance in this case, as the AO himself observed that the assessee did not dispute the stamp valuation before the Stamp Valuation Authority. There may be several reasons for the purchaser not to file such objection. A purchaser may not go into litigation, and pay stamp duty, as fixed by the Stamp Valuation Authority, which may be over and above the fair market value of the property, as on the date of transfer, though t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aluation so received from the DVO. While so deciding the matter afresh, the Assessing Officer will decide the matter in accordance with the law, by way of a speaking order and after giving a reasonable opportunity of hearing to the assessee. We direct so. 9. Ground No. 2 is thus allowed for statistical purposes in the terms indicated above. 10. In ground no.3, the assessee has raised the following grievance: Because the disallowance of rebate of interest paid to the bank on security of FDR of ₹ 436705/- is wrong and illegal specially when the circumstances for taking the loan was duly explained and to earn more income. 11. So far as this grievance of the assessee is concerned, the relevant material facts are like this. During the course of the assessment proceedings, the Assessing Officer noticed that the assessee had made a fixed deposit of ₹ 1,00,00,000 with ICICI Bank and earned interest of ₹ 11,77,574 on these deposits. However, while computing the income from other sources, the assessee claimed a deduction of ₹ 4,36,705 on account of interest paid on loan of ₹ 75,00,000 taken, on the security of deposits. When asked to just ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd exclusively for the purpose of making or earning of income from FDRs. As per section 57(iiii), any expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income should be allowed deduction against the 'income from other sources'. There is no dispute that interest income from FDR is assessable under the head 'income from other sources' and hence, if any deduction is required to be allowed against such income, it should be allowed as per the provision provided under this head. From the fact of the case, it is very clear that the loan taken from the bank has been utilized for giving of gift and hence, such loan cannot be considered to have been utilized for purchase of FDRs and, therefore, if any interest is paid on such loan, it could not be said to have been laid out or expended wholly and exclusively for the purpose of earning of income as interest from FDRs. Therefore, I find that the AO is correct in holding that the interest paid on the loan taken from bank for the purpose of giving gift to son of the assessee (appellant), cannot be allowed as deduction u/s.57(iii) agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erwise the gross interest would be lesser than what the net interest is shown as the assessee has to get interest much less what she received up to the period of taking loan which has to be worked out by the bank on the basis of the duration of FDR remained by the bank up to the date of taken loan which shall be only about 6% being for less than 6 month period. A working of interest could be earned if the FDR was encashed on the date of taking the loan is given as below: Interest on 1,00,00,000/- @ 6% i.e. 01.04.2007 to 30.07.2007 Rs.2,00,000/- 5000000/- @ 6% i.e. 01.08.2007 to 18.03.2008 Rs.1,87,500/- 2500000/- @ 9% i.e. 18.03.2008 to 31.03.2008 ₹ 9,375/- Rs.3,96,875/- That from the perusal of the record you will find that the assessee has shown interest of ₹ 736625/- (Rs.1173330/- minus 436705/- intt. paid on loan) while if the assessee encashed the FDR for giving gift to son then the intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expended not with a necessity and with a view to direct and immediate benefit to the trade, but voluntarily and on the grounds of commercial expediency and in order to indirectly facilitate, carrying on of business may yet be expended wholly and exclusively for the purpose of the trade; and it appears to me that the findings of the CIT in the present case, bring the payment in question within that description. They found (in words which I have already quoted) that payment was made for the sound commercial purpose of enabling the company to retain the existing and future members of staff and for increasing the efficiency of the staff; and after referring to the contention of the Crown that the sum of Sterling Pound 31,784 was not money wholly and exclusively laid out for the purpose of the trade under the rule above referred to, they found deduction was admissible-thus in effect, though not in terms, negativing the Crowns contentions. I think that there was ample material to support the findings of the CIT, and accordingly hold that this prohibition does not apply. It will, therefore, be clear that even if an expense is incurred voluntarily, it may still be construed as 'wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf inasmuch as, going by the admitted facts of this case, the interest chargeable on the fixed deposit itself is linked to the interest accruing and arising from the fixed deposit. On these facts, in order to protect the interest earnings from fixed deposits and to meet her financial needs, when an assessee raises a loan against the fixed deposits, so as to keep the source of earning intact, the expenditure so incurred in wholly and exclusively to earn the fixed deposit interest income. The authorities below were apparently swayed by the fact that the borrowings were triggered by assessee's financial needs for personal purposes and, by that logic, the borrowing cannot be said to be wholly and exclusively for the purposes of earning interest income, but what this approach overlooks is whether the expenditure is incurred for directly contributing to the beginning of or triggering the source of income or whether the expenditure is for protecting, and thus keeping alive, that source of income, in either case it is expenditure incurred wholly and exclusively for the purpose of earning that income. The assessee indeed required that money, so raised by borrowing against the fixed depo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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