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TMI Blog2014 (5) TMI 1197X X X X Extracts X X X X X X X X Extracts X X X X ..... the interest yielding bonds, which clearly establishes the nexus between the income earned and the expenditure incurred. It has been rightly noted by the CIT(A) that the interest income earned/ accrued on such bonds has been offered for tax as income from other sources and the expenditure incurred for earning such income is allowable u/s 57(iii) and therefore there is clear link and nexus between interest earned and interest paid and therefore the assessee will be eligible for the deduction of interest out of the interest earned on such investment. Therefore we find no infirmity in the order of the CIT(A), therefore we confirm the order passed by the CIT(A) and the appeal preferred by the revenue is dismissed. - ITA No. 3418/Del/2011 - - - Dated:- 9-5-2014 - Shri T.S.Kapoor, Accountant Member And Shri A. T. Varkey, Judicial Member Appellant by : S. N. Bhatia, DR Respondent by : Rajesh Arora, FCA ORDER A. T. Varkey, This is an appeal preferred by the revenue against the order of the ld CIT(A), XXX, New Delhi dated 29.04.2011 for the Assessment Year 2006-07. 2. The grounds of appeal preferred by the revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d DR submitted that there is neither a direct or indirect nexus between the expenditure incurred on account of interest paid on term loan and the income declared under other sources. The ld DR contended that it is well settled law that it is not sufficient to establish merely that the expenditure was incurred indirectly to facilitate the carrying on of the activity which is the source of income; the nexus must necessarily be between the expenditure incurred and income earned. According to the ld DR, section 57(iii) stipulates that the whole and exclusive nature of the expenditure incurred must be for the purpose of earning the income. Therefore the ld DR contends that it is the mandate of law that the purpose of making or earning income must be the sole purpose for which the expenditure must have been incurred and therefore the expenditure should not have been incurred for any such purpose as well as any other purpose or for any mixed purpose. According to the ld DR, in the instant case, the interest paid was not wholly and exclusively incurred for the purpose of earning interest from bonds, instead the loan was wholly and exclusively relatable to the purchase of bonds for the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per the Share purchase agreement with M/s. IBM Global Services (I) Pvt. Ltd. (buyer), the assessee did not receive the entire sale consideration during the Assessment Year 2005-06. An amount equal to the remaining 15% held back shares was payable in the relevant Assessment Year 2006-07. Besides, deferred payment was payable by the buyer at the expiry of the second anniversary of the first closing date i.e. Assessment Year 2007-08. 9. The amount received in Assessment Year 2005-06 was as follows:- Date Amount US$ Exchange Rate Amount Received (Rs.) 23.06.2004 13,05,924/- 45.54 5,94,71,762 01.10.2004 68,95,261 45.54 31,40,10,207/- 07.03.2005 17,08,013/- 45.54 7,77,82,918/- Total 45,12,64,887/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7,411/- Interest from SBI Capital gain A/c 60,818/- Interest received from IBM on Holdback amount 37,00,835/- Interest accrued on Bonds 2,83,52,461/- Interest on minor children s account 27,867/- Less: Exemption on Minor Children s A/c 3,000/- Interest paid to Citibank on term loan 52,48,337/- 52,51,337 Balance 2,69,48,054/- 12. The ld AR further submitted that the assessee had paid interest on the aforesaid loan amounting to ₹ 52,84,337/- (P.B. 34), however the Assessing Officer disallowed the assessee s claim on interest on the said loan taken from Citibank. According to him the Assessing Officer had erroneously alleged that there is no nexus between the interest earned on bonds and interest paid on loan taken from Citibank as required as per the provisions of Section 57(iii) of the Act. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e interest expenses u/s 57(iii) on the ground that there was no nexus between the interest earned and interest paid by the assessee. The case in hand is ditto the one decided by the co-ordinate Bench of this Tribunal in the case of ACIT Vs. Paven Vaish in ITA No. 2232/Del/2010 for the same relevant Assessment Year (P.B. 117-122) held as under:- The Assessing Officer has disallowed the claim of interest simply on the ground that the purpose for which the loan was obtained was different from the earning of interest. There is no dispute about the fact that the assessee had earned interest on bonds, which were purchased out of borrowed funds. It is not the case of the Assessing Officer that for the purpose of deduction u/s 54EC, the borrowed funds cannot be utilized in place of sale consideration. The issue whether deduction 54EC was available or not, in Assessment Year 2005-06 is not before us. The assessee has invested borrowed funds in acquisition of bonds and has earned interest thereon. Therefore, the interest payable on borrowed capital has to be allowed as deduction of interest earned on such investments. We therefore, hold the assessee will be eligible for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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