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TMI Blog2024 (3) TMI 469X X X X Extracts X X X X X X X X Extracts X X X X ..... terest income), rightly disallowed, restricts it s claim before us to expenditure incurred by way of interest on secured debt deployed in debt instrument earning interest income, assessed u/s. 56 and, again, rightly so, i.e., in computing the said income. The facts are admitted. It is only real income, unless constrained by law, that is liable to tax. Though the nomenclature perpetual debt is inconsistent with the stated position of parking of business funds, surplus for the time being, the same shall have no immediate bearing in the instant case, limited to deductibility of interest on borrowed capital placed in a debt security for interest. Revenue s insistence on taxing the gross receipt, de hors expenditure there-against, is without any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g financed by share capital and unsecured loans from the Directors. During the current year, the company mobilized public borrowings through secured debentures (at Rs. 61.32 crore) which, as stated, was used partly for repayment of Directors loans and partly (Rs. 37.50 crore), being surplus for the time being, invested in what it called perpetual debt instrument (PDI), fetching an interest income of Rs. 231.62 lakh. The Assessing Officer (AO) disallowed the assessee s claim for loss as there was no question of a business loss when the business itself had not commenced, and which could therefore only be on carrying business, i.e., after its commencement. Two, interest on surplus funds for the time being was not liable to be capitalized but a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... GoA), it s only claim was for being allowed proportionate interest expenditure against interest income inasmuch as the entire investment in PDI is sourced from secured debt. How, pray, we wonder, could that be faulted with? The only reason we observe is per para 2.3.7 (page 7) of the assessment order which, in its relevant part, reads as under:- 2.3.7 As mentioned above, assessee is also not entitled to deduct the same u/s. 57 as, in the case of the assessee the payment of interest is on funds raised through secured debentures and this fund was not meant for investing in PDI s but for fulfilling the objectives of the company. Hence the same cannot be considered as expenditure laid out wholly and exclusively for earning such income and hence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, in the facts of the case, as noted by it (pg. 180 E of the Reports), there was no claim by the assessee in respect of interest paid, or for that matter, any expenditure, u/s. 57. Rather, the Hon'ble Apex Court clarified that if borrowed capital is used for earning income, that income will have to be taxed in accordance with law (pg. 179H). What, then, we wonder is the dispute about? 4.2 Continuing further, it is, as afore-noted, not the case of the assessee that it has incurred interest in a higher sum, resulting in a loss, which it be either allowed to be carried forward or otherwise to be capitalized. The AO s finding that the borrowed capital is not related to the investment in project is, under the circumstances, though correct, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndard on Borrowings, with their further being nothing to suggest construction and, rather, the assessee acquiring agricultural land, income from which is tax-exempt, besides other projects . The disallowance of the balance expenditure of Rs. 198.29 lacs (i.e., Rs. 410.61 lacs Rs. 212.32 lacs) remains un-interfered with. 5. In sum, the assessee, a company setting-up business during the relevant year, though claiming loss (qua preoperative expenditure, on setting it off interest income), rightly disallowed, restricts it s claim before us to expenditure incurred by way of interest on secured debt deployed in debt instrument earning interest income, assessed u/s. 56 and, again, rightly so, i.e., in computing the said income. The facts are admit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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