TMI Blog2000 (3) TMI 182X X X X Extracts X X X X X X X X Extracts X X X X ..... r sources' is permissible"? Vide its order dated 16th August, 1999. Accordingly, both the parties were heard on the aforesaid issue. 2. Shri Brijesh Gupta, the learned Senior Departmental Representative, has strongly argued that once the interest income is treated as income from other sources, only those expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income, are deductible from the interest income as per section 57(iii) of the Act. He also invited our attention to the provisions of section 36(1)(iii) of the Act and contended that as per this clause all interest paid in respect of the capital borrowed for the purpose of business or profession is to be deducted from the income computed as per section 28 of the Act. Section 36(1)(iii) of the Act has a wider amplitude than section 57(iii) of the Act as all types of interest paid in respect of capital borrowed for the purpose of business or profession is deductible from the income from business or profession whereas under section 57(iii) deduction of only that expenditure is allowable from the income from other sources which has been sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y or exclusively for the purpose of making or earning the income from other sources. If we read the provisions of sections 28, 36, 56 and 57 of the Act simultaneously we would find that if the income is considered under the head "income from business or profession" only those deductions are allowable which find place in section 36 of the Act and likewise if the income is treated to be the income from other sources, only those deductions are allowable which are enumerated in section 57 of the Act. Hence, while computing the income from other sources only that expenditure is allowed to be deducted which is laid out or expended wholly or exclusively for the purpose of making or earning such income, as per section 57(iii) of the Act. The expression used for the purpose of business or profession in section 36(1)(iii) has a wider amplitude than section 57(iii) in which the Legislature has used the expression "expenditure laid out or expended wholly or exclusively for the purpose of making or earning such income". A similar view was also expressed by the Apex Court in the case of Madhav Prasad Jatia. While dealing with an identical issue, their Lordships of the Karnataka High Court has he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w. The assessee was entirely at liberty to deal with the interest amount as it liked. Since the business of the assessee had not started, the expenditure incurred by the assessee for the purpose of setting up its business could not be allowed as deduction nor could it be adjusted against any income against any other head. Similarly, any income from a non-business source could not be set off against the liability to pay interest on funds borrowed for the purpose of purchase of plant and machinery even before the commencement of the business of the assessee. Our attention was also invited to the latest judgment of the Madras High Court in the case of South India Shipping Corpn. Ltd. in which their lordships have held after relying upon the judgment in the case of Tuticorin alkali chemicals Fertilizers Ltd. that under the Income-tax Act, 1961, the distinct heads under which the income of an assessee are to be classified are set out in section 14 of the Income-tax Act, 1961. The income received by an assessee has to be fitted under one or other head having regard to the source from which that income is derived. The fact that a person carries on the business does not lead to the infer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT v. S. Devaraj [1969] 73 ITR 1 (Mad.) (7) CIT v. H.R. Sugar Factory (P.) Ltd [1991]187 ITR 363 (All.) (8) CIT v. Kiranbhai H. Shelat [1999] 235 ITR 637 (Guj.) (9) CITv. Dr. V.P. Gopinathan [1998] 229 ITR 801 (Ker.) (10) ITO v. Smt. Premlata Manohar [1999] 65 TTJ (Delhi) 294. 8. From a careful persual of the relevant provisions of the taxing Act in the light of the aforesaid judicial pronouncements and the rival submissions, we are of the view that while computing the income under the head 'income from other sources" under section 56 of the Act, only those deductions are allowed to be deducted which are enumerated under section 57 of the Act. The deductions claimed under section 36 of the Act cannot be allowed to be deducted from the income from other sources while computing the same under section 56 of the Act. As per section 57(iii) only those expenditure which are wholly or exclusively incurred for earning the income from other sources are allowed to be deducted from the income from other sources. In the light of this analogy if we examine the case in hand we would find that the borrowed fund was invested for earning interest thereon and the interest income is not a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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