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TMI Blog2019 (12) TMI 867X X X X Extracts X X X X X X X X Extracts X X X X ..... g the deduction under section 57(iii) is that the expenditure has been incurred wholly and exclusively for the purpose of earning the income. Thus the purpose of expenditure is relevant and not the end result of such expenditure laid out by the assessee. When the interest expenditure was laid out by the assessee for earning the interest income, then the rate of interest for payment of interest is not relevant for the purpose of allowing the deduction under section 57(iii) of the Act. The authorities below have committed an error while disallowing the claim of interest on the ground that the payment in case of one party is at a higher rate than the interest earned by the assessee from such expenditure. The orders of the authorities below ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts of interest the assessee has paid the interest at 20%. Accordingly, the AO restricted the interest paid against the interest received by applying the rate at 18% instead of 20% paid by the assessee in respect of one party. The assessee challenged the action of the AO before the ld. CIT (A) but could not succeed. 3. Before the Tribunal, the ld. A/R of the assessee has submitted that when the assessee has paid the interest on the borrowed fund which has been used for earning the interest income, then the expenditure incurred by the assessee is wholly and exclusively for earning the interest income. Thus the deduction of interest paid is allowable under section 57(iii) of the Act. There is no provision under section 57 to restrict the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record. The assessee has received interest income as well as paid interest expenditure, the details of which has been reproduced by the AO in the assessment order as under :- S. No. Name of the party Interest received Rate 1. Universal Corporation 2473382/- 18% 2. City Buildtech 12903/- 6% 3. Meel Traders 45570/- 15% 4. Vikas Traders 174024/- 12% 5. Vaibhav Enterprises ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r urgent need of funds. When the AO has not disputed the correctness of the payment and genuineness of the transaction, then merely because the payment of interest to one of the parties is higher than the average earning of interest, the same cannot be a reason for disallowing the claim of interest expenditure. The only requirement for allowing the deduction under section 57(iii) is that the expenditure has been incurred wholly and exclusively for the purpose of earning the income. Thus the purpose of expenditure is relevant and not the end result of such expenditure laid out by the assessee. The Hon ble Supreme Court in case of CIT vs. Rajendra Prasad Moody (supra) has held in para 4 to 6 as under :- What s. 57(iii) requires is that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 57(iii). It is also interesting to note that, according to the revenue, the expenditure would disqualify for deduction only if no income results from such expenditure in a particular assessment year, but if there is some income, howsoever small or meagre, the expenditure would be eligible for deduction. This means that in a case where the expenditure is ₹ 1,000, if there is income of even Re. 1, the expenditure would be deductible and there would be resulting loss of ₹ 999 under the head Income from other sources . But if there is no income, then, on the argument of the revenue, the expenditure would have to be ignored as it would not be liable to be deducted. This would indeed be a strange and highly anomalous result and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be construed according to its plain natural meaning and merely because a slightly wider phraseology is employed in another section which may take in something more, it does not mean that s. 57(iii) should be given a narrow and constricted meaning not warranted by the language of the section and, in fact, contrary to such language. Similarly, the Hon ble Punjab Haryana High Court in case of CIT vs. Pankaj Munjal Family Trust (supra) has held in para 12 as under :- 12. After hearing the learned counsel for the parties and going through the impugned order, we do not find any force in the contention raised by the learned counsel for the Revenue ; and, in our opinion, no substantial question of law is arising from the impugned order ..... X X X X Extracts X X X X X X X X Extracts X X X X
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