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2018 (12) TMI 1051 - AT - Income TaxAllowability of the interest expenditure as a deduction u/s 57(iii) against interest income on FDRs - assessee for not opting for a premature encashment of the FDR's and rather raising a loan from the bank to facilitate purchase of residential property, was backed with the intent of protecting the interest income received from the fixed deposits - Held that:- In case of interest income earned by an assessee, only the expenditure (not being in the nature of a capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income is to be allowed as a deduction under Sec. 57(iii) of the Act. We thus, are of the considered view that as the interest expenditure of ₹ 37,84,593/- incurred by the assessee on the loan raised for purchase of property (against the security of FDR's), cannot be construed as having been laid out or expended wholly and exclusively for the purpose of making or earning of the interest income on the said FDR's, therefore, the same cannot be allowed as a deduction as against the interest income of the assessee - the existence of an inextricable nexus between the incurring of the interest expenditure and earning of the interest income is a pre-requisite condition for allowability of the interest expenditure as a deduction under Sec. 57(iii) of the Act. We find that our aforesaid view stands fortified by the judgment of the Hon’ble Supreme Court in the case of CIT Vs. Dr. V.P Gopinathan [2001 (2) TMI 10 - SUPREME COURT] - decided against assessee. Alternative claim of the assessee - as the interest expenditure was incurred on the funds borrowed for acquisition of a property, thus, the same would be entitled for deduction under Sec. 24(b) - Held that:- the interest expenditure incurred by the assessee on the loan raised by him, to the extent the same is relatable to the funds utilized by him towards purchase of his share of ownership in the residential property viz. Flat No. 201, Sea Goddess, Juhu, Mumbai, would be eligible for deduction under Sec. 24(b) of the Act. We thus, restore the matter to the file of the A.O, who shall after making necessary verifications allow the deduction of the interest expenditure under Sec. 24(b) of the Act to the assessee - decided in favour of assessee for statistical purposes.
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