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2018 (11) TMI 1256 - HC - Income TaxEntitlement to claim set off of interest income from fixed deposits from the interest paid on borrowed funds - the borrowed funds having been invested in short term fixed deposits till it was utilised - The assessee is a Company, which at that point of time was constructing an air port, for which purpose advances were taken from HUDCO. The funds were parked in short term Fixed Deposits which earned interest income - Held that:- The assessee may be entitled to capitalise the interest payable by it. But what the assessee cannot claim is adjustment of this expenditure against interest assessable under Section 56. Section 57 of the Act sets out in its clauses (i) to (iii) the expenditures which are allowable as deduction from income assessable under Section 56. It is not the case of the assessee that the interest payable by it on term loans is allowable as deduction under Section 57 of the Act. In the first assessment year there is yet another question as to whether the expenditure claimed on salary could have been allowed as against the interest income earned by the assessee from Fixed Deposit. The assessee had claimed expenditure of salary paid to its employees from the interest income earned from the Fixed Deposits. Admittedly, at that point, there was no business income available to the assessee since the air port had not been established. The above extracted paragraph also answers this question. Hence there could have been no expenditure claimed under the Income Tax Act. We hence answer that question also against the assessee and in favour of the Revenue.
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