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TMI Blog2014 (5) TMI 1197X X X X Extracts X X X X X X X X Extracts X X X X ..... to derive double benefit by claiming exemption u/s 54EC in respect of capital gains income and by simultaneously claiming deduction u/s 57(iii) in respect of the interest paid on loan which was taken to invest in 54EC bonds. (ii) not considering the fact that the purpose of the loan was not to make an interest- bearing investment rather was per assessee's own certification, the loan was taken to purchase capital gain tax saving bonds to avail of the exemption u/s 54EC and hence the allowability of deduction from income earned from other sources is against the provisions of the Income Tax Act, 1961." 3. Apropos the ground of the appeal are that the claim of interest expenses of Rs. 52,48,337/- u/s 57(iii) in the light of the assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of interest paid on term loan and the income declared under other sources. The ld DR contended that it is well settled law that it is not sufficient to establish merely that the expenditure was incurred indirectly to facilitate the carrying on of the activity which is the source of income; the nexus must necessarily be between the expenditure incurred and income earned. According to the ld DR, section 57(iii) stipulates that the whole and exclusive nature of the expenditure incurred must be for the purpose of earning the income. Therefore the ld DR contends that it is the mandate of law that the purpose of making or earning income must be the sole purpose for which the expenditure must have been incurred and therefore the expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fered the capital gain arising out of the above mentioned transaction in the Return of Income for Assessment Year 2005-06 as under:- Nature Sale Consideration (Rs.) Purchase Cost (Rs) Indexed cost of acquisition (Rs.) Capital gains (Rs.) Long term capital gain 48,97,67,592 4,44,214 5,25,179 48,92,42,413 Short term capital gain 2,87,85,343 2,63,101 2,63,101 2,85,22,242 Total 51,85,52,935 7. The assessment for the Assessment Year 2005-06 was completed u/s 143(3) by the Assessing Officer at the returned income and the declared capital gains was duly accepted in the assessment order. The ld AR took our attention to the copy of assessment order which is placed at page 69 of the paper book. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,000 48,93,80,000/- Balance The Investment u/s 54EC and 54F were made by the assessee as under:- Investment Date of investment Amount Invested (Rs.) National Housing Bank Bond 24.06.2004 2,94,80,000/- Rural Electrification Corporation ltd. 28.06.2004 3,00,00,000/- National Housing Bank Bond 21.12.2004 15,00,00,000/- Rural Electrification Corporation Ltd. 23.03.2005 10,00,00,000/- National Housing Bank 31.03.2005 7,34,00,000/- SBI Capital gain Housing Scheme(section 54F) 18.03.2005 65,00,000/- Total 48,93,80,000/- In the return income for the year under reference, i.e. Assessment Year 2006-07, the assessee declared interest income under the head, Income from other sources. The same was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds, from which the interest income is earned. This clearly shows that there is nexus between the earning of interest income taxable u/s 57(iii) and the interest paid on loan. The ld AR stressed that, since the loan was taken by the assessee for purchasing the bonds and for earning the interest income thereon, the assessee is entitled to claim the deduction of the interest paid from the interest earned on bonds u/s 57(iii) of the Act. Therefore according to the ld AR the ld CIT(A) was right in law to allow the appeal of the assessee and therefore the ld AR, pleads that we may not disturb the order of the ld CIT(A). 13. We have heard both the parties and have carefully perused the records and has gone through the case laws cited by both th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest simply on the ground that the purpose for which the loan was obtained was different from the earning of interest. There is no dispute about the fact that the assessee had earned interest on bonds, which were purchased out of borrowed funds. It is not the case of the Assessing Officer that for the purpose of deduction u/s 54EC, the borrowed funds cannot be utilized in place of sale consideration. The issue whether deduction 54EC was available or not, in Assessment Year 2005-06 is not before us. The assessee has invested borrowed funds in acquisition of bonds and has earned interest thereon. Therefore, the interest payable on borrowed capital has to be allowed as deduction of interest earned on such investments. "We therefore, hold ..... X X X X Extracts X X X X X X X X Extracts X X X X
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