TMI Blog2012 (12) TMI 608X X X X Extracts X X X X X X X X Extracts X X X X ..... es rise to interest income and the other gives rise to interest liability. We are of the view that this affords sufficient nexus between the two so as to justify the applicability of the principle of netting. Judgment of the Supreme Court in CIT vs. Dr.V.P.Gopinathan (2001 (2) TMI 10 - SUPREME COURT) is against the claim of the assessee but a closer look at the facts shows that the judgment of the Supreme Court in Keshavji Ravji & Co. vs. CIT (1990 (2) TMI 1 - SUPREME COURT) is closer to the assessee's case on principle. - The netting principle was adopted in CIT vs. Shri Ram Honda (2007 (1) TMI 86 - HIGH COURT, DELHI). Decided in favor of assessee. - ITA No. 258, 546, 942/2010 - - - Dated:- 30-11-2012 - S. Ravindra Bhat And R.V. Easwar, JJ Appellant Rep. by : Mr. Kamal Sawhney, Sr. Standing Counsel. Respondent Rep. by : Mr. Percy J. Pardiwalla, Sr. Adv with Mr. Satyen Sethi and Mr. Arta Trana Panda, Adv JUDGEMENT Per : R.V. Easwar, J : The common question of law which arises in all the three appeals by the revenue relates to the assessment of the perquisites in the hands of the respective assessees. In ITA No.942/2010 the substantial question of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his employer, that no furniture or security guards or cooks were provided to him and that the telephone was provided by the firm by name M/s Sahara India Mass Communication, in which the assessee was a partner and that considering all these circumstances the CIT(Appeals) had rightly deleted the perquisites brought to assessment by the assessing officer. Following its earlier order, the Tribunal took the same view holding as follows:- In the present case we find that the additions in respect of perquisite value were towards electricity expenses, rent free accommodation, value of domestic servant, security guard, telephone at residence, chauffeur driven car, other amenities, club membership and in respect of foreign travel undertaken by the assessee. However, we find that all these additions were made without finding that the company has incurred such expenses by way of providing perquisite to the assessee and not incurred by the company in the course of carrying on business. The additions were made on estimate basis. Since the facts are identical in the case of the assessee for Assessment Year 1998-99, we do not find any infirmity in the order of the learned CIT (A). 6. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owned by the firm and, therefore, there was no concession in the matter of either rent or furniture and fixtures. Considering these findings of facts, we see no reason to interfere with the orders of the Tribunal in these two appeals so far as the issue of perquisites is concerned. Accordingly the first substantial questions of law in these two appeals are answered in the affirmative, in favour of the assessee and against the Revenue. 11. The second substantial question of law in these two appeals relating to J.B.Roy is:- (ii) Whether the Income Tax Appellate Tribunal was correct in law in allowing deduction of Rs. 3,84,000/- to the assessee under Section 10(13A) of the Act for the assessment year 2001-02? 12. In respect of the other assessee, question of law is the same but the amount involved is Rs. 2,31,000/-. In the returns the assessee had claimed deduction under Section 10(13A) on the basis of the rent paid by him which has been debited from his salary directly. This Section exempts any special allowances specifically granted to an assessee by his employer to meet expenditure actually incurred on payment of rent for residential accommodation occupied by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the CIT (Appeals). 14. We have considered the issue in the light of the rival contentions. The ground on which the claim for exemption under Section 10(13A) was rejected by the assessing officer was that the salary receipts by the assessee from M/s Sahara India Mass Communication cannot be assessed under the head salary , but should be assessed under the head income from other sources . The assessing officer has however not brought any material to show that the relationship between the M/s Sahara India Mass Communication and the assessee was not that of a master and servant. He has referred to some extraneous material to hold that the salary receipt should be assessed as income from other sources. Unless there is material to show that there was no employer-employee relationship, the proper head of income to be applied is that of salary . Since this is not the case of the assessing officer, we are of the view that the Tribunal was right in holding that the assessee was entitled to the exemption under Section 10(13A). In this view of the matter, we answer the second substantial question of law in these two appeals in the affirmative, in favour of the assessee and against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee on the same footing on which interest received by the assessee is taxable .. It would appear that the interest liability had been capitalised towards the actual cost of the land. Therefore, the assessing officer sought clarification as to how the capitalised interest can be allowed to be adjusted against the interest received. The assessee by letter dated 10.2.2003 clarified the issue as follows:- No doubt, the interest which was payable on the loan for the purchase of the land has been capitalised the cost of the land because it was a capital asset in the hands of the assessee but your honour will appreciate that the interest which is being set off by the assessee is subsequent to the date of sale of the land. We have already explained to your honour in our earlier written submission that the interest payment received from SICCL is on account of late remittance of the sale proceeds of land by them to the assessee. In turn, the assessee could square off his loan taken for the purchase of land at a later date and, therefore, the assessee had to pay interest also for the period subsequent from the date of sale till the date of actual payment. On the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elated to each other, the CIT(Appeals) was of the view that the interest received and the interest paid should be set off against each other and only the balance, being the excess interest of Rs. 7,74,897/-, can be brought to tax under the head income from other sources . He thus allowed the assessee's appeal on this point. 19. The Revenue carried the matter in appeal to the Tribunal in ITA No.1502/Del/2008. The Tribunal was inclined to view both the transactions as interconnected. This is what the Tribunal held:- 10. We have considered the rival submissions. The interest paid by the assessee was initially in respect of loan taken for purchase of agricultural land. Thus till the land was held by the assessee, the interest there on is not allowable as the same is in respect of agricultural land which is not a capital asset and no capital gain is chargeable in this respect. However, the interest payable after the land was sold cannot be considered as for acquisition of any capital asset. The same was in the nature of amount borrowed. Since the assessee did not receive the sale price of land sold, the assessee could not repay the debt. On the amount receivable from the perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ference has also been made to another Supreme Court judgment in Associated Capsules Pvt. Ltd. v. ACIT, (2012) 343 ITR 89 and a judgment of a Division Bench of this Court in CIT v. Shri Ram Honda Power Equip, (2007) 289 ITR 475. 23. It would prima facie appear that the judgment of the Supreme Court in CIT vs. Dr.V.P.Gopinathan (Supra) is against the claim of the assessee but a closer look at the facts shows that the judgment of the Supreme Court in Keshavji Ravji Co. vs. CIT (Supra) is closer to the assessee's case on principle. In the former, the assessee had placed monies in a fixed deposit with the bank. On the security of the fixed deposit, he took a loan. The interest received on the fixed deposit and the interest paid on the loan were sought to be adjusted against each other and only the net interest was offered for tax. The assessee did not put his case under Section 57(iii), but relied on the principle of mutual dealings and real income theory. The Supreme Court rejected the claim, holding as under:- It was not disputed, as it could not be, that if the assessee had taken a loan from another bank and paid interest thereon his real income would not diminish to the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the interpretation of the provisions of the Act. The position was ultimately summed up as follows:- How do these principles operate on the present controversy? It appears to us that, if, in substance, the interest paid by the firm to a partner and the interest, in turn, received from the partner are mere expressions of the applications of the funds or profits of the partnership and which, having regard to the community of interest of the partners, are mere variations of the method of adjustment of the profits, there should be no impediment in treating them as part of the same transaction if, otherwise, in general law, they admit of being so treated. The provisions of section 40(b) do not exclude or prohibit such an approach. If, instead of the transactions being reflected in two separate or distinct accounts in the books of the partnership, they were in one account, the quantum of interest paid by the firm to the partner would, to the extent of the drawings of the partner, stand attenuated. The mere fact that the transactions are split into or spread over two or more accounts should not, by itself, make any difference if, otherwise, the substance of the transaction is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the agricultural land was sold by the assessee in the month of February, 1999 to SICCL. From the date of sale of the land till the remittance of the sale proceeds the assessee was to pay interest of Rs. 10,12,529/- on the loan which he had taken for purchase of the land. It is in respect of the same period that he was entitled to interest income of Rs. 17,18,426/- from SICCL. Had there been no delay by SICCL in the remittance of the sale proceeds, there would have been no interest liability. The right to receive the interest and the liability to pay interest arose in respect of the same period and out of the same event i.e. non-payment of the sale proceeds in time. The delay in payment of the sale proceeds and the delay in repayment of the borrowing are both intertwined; one gives rise to interest income and the other gives rise to interest liability. We are of the view that this affords sufficient nexus between the two so as to justify the applicability of the principle of netting. 25. For the aforesaid reasons, we affirm the decision of the Tribunal on this point and answer the substantial question of law in the affirmative, in favour of the assessee and against the Revenue. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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