TMI Blog2020 (5) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... there is nothing to show that the expenses claimed as deduction were incurred for earning interest income. Equally, the claim of the appellant that the expenditure incurred by the assessee was allowable under Sections 30 to 37 of the Act is inadmissible for the reason that the business of the assessee was lying closed and income from interest was chargeable to tax as 'income from other sources' under Section 56 of the Act. Once that was so, the Tribunal had rightly adjudicated the matter in favour of the revenue. - Decided against assessee. - IT(IT)A No.1715/Bang/2019, IT(IT)A No.1716/Bang/2019 - - - Dated:- 27-4-2020 - Shri Chandra Poojari, Accountant Member For the Appellant : Smt.Sheethal Borkar, Advocate For the Respondent : Dr.Ganesh R.Ghale, Standing Counsel ORDER These appeals filed by the assessee arise out of two different orders of the CIT(A), Bangalore. The relevant assessment years are 2012-2013 and 2013-2014. 2. There is a delay of 67 days in filing these appeals before the Tribunal. The assessee has filed a petition for condonation of delay and also an Affidavit of the assessee stating therein the reasons for belated filing of the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal vide order dated 18th July, 2014, held as under:- 16. The question that we really need to adjudicate on is, therefore. whether or not income paid on interest against the fixed deposits can be said to have been incurred wholly and exclusively for the purpose of earning interest income from fixed deposits. 17. The legal connotations of expression wholly and exclusively came up for consideration before a coordinate bench of this Tribunal, though in the context of deductions from business income, and the coordinate bench, extensively reproducing from binding judicial precedents, observed as follows in the case of Ajay Singh Deol Vs. JCIT [(91 ITD 196) 2004]: 8. We find guidance from a passage from the judgment of House of Lords in the case of Atherton vs. British Insulated Helsbey Cables Ltd. (1925) 10 Tax Cases 155 (HL), referred to with approval by the Hon'ble Supreme Court in the case of CIT vs. Chandulal Keshavlal Co. (1960) 38 ITR 601 (SC), which reads as follows: It was made clear in the above cited cases of Usher's Wilshire Brewery vs. Bruce (supra) and Smith vs. Incorporated Council of Law Reporting (1914) 6 Tax Cases 477 that a sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The introduction of the word necessarily in the above section resulted in public protest. Consequently, when s. 37 was finally enacted into law, the word necessarily came to be dropped. The fact that somebody other than the assessee is also benefited by the expenditure should not come in the way of an expenditure being allowed by way of deduction under s. 10(2)(xv) of the Act if it satisfies otherwise the tests laid down by law . 18. It is thus clear that as long as the expense is incurred wholly and exclusively for the purpose of earning an income, even if it is not necessarily for earning that income, it will still be deductible in computation of income. What thus logically follows is that even in a situation in which proximate or immediate cause of an expenditure was an event unconnected to earning of the income, in the sense that the expenditure was not triggered by the objective to earn that income, but the expenditure was, nonetheless, wholly and exclusively to earn or protect that income, it will not cease to be deductible in nature. It is also important to bear in mind the fact that a borrowing against fixed deposit cannot be considered in isolation of a fixed de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hand, the learned Departmental Representative relied on the order of the co-ordinate Bench of the Tribunal in the case of Shri M.J.Aravind v. JCIT [ITA No.1991/Bang/2016]. The Tribunal vide order dated 20.04.2018 held as under:- 8. As per the provisions of section 57(iii) of IT Act, any 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 under the head income from other sources is allowable. In addition to that, in respect of income excluding exempt income being interest on securities, any reasonable sum paid by way of commission or remuneration to banker or any other person for the purpose of realising such dividend or interest on behalf of the assessee is allowable as per clause (i) of section 57. Apart from these two clauses i.e. clause (i) (iii), other clauses of section 57 are not applicable in the present case. The assessee s claim is this that as per section 14A of IT Act, % of the investments has to be disallowed and the balance has to be allowed and the assessee computed the disallowance in that manner and claimed balance amount as deduction. In this regard, we obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me from other Sources but income could not be earned in the present year. The reason for disallowance made by the AO and confirmed by CIT(A) is this that the assessee has not furnished necessary details and hence, this judgment renders no help to the assessee in the present case. 11. Reliance has been placed by ld. AR of assessee on the Tribunal order rendered in the case of East West Hotels Ltd. vs. ACIT (supra). In that case, lease rent income was to be assessed as income from other sources and the assessing officer held that expenditure allowable is restricted to only such payment, which is separately binding on the employer and legal entity, i.e., company, such as salaries, PF, ESI and other inevitable expenses. In that case, the assessee was a company and the Tribunal has followed the judgment of Hon ble Calcutta High Court rendered in the case of CIT Vs. Ganga Properties Ltd. as reported in 199 ITR 94 in which it was held that expenditure incurred in complying with statutory obligations is deductible u/s. 57(iii) of IT Act. As per the relevant para of judgment reproduced by the Tribunal, it was noted that even if a company derives income from other sources , it has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the present case because the assessee in the present case is not a company and therefore, there is no such legal compulsion to incur the expenses which are claimed in the present case. Hence we find that the claim of assessee for allowing deduction of expenses against income from other sources is not allowable because the assessee has not established that the expenses are allowable u/s. 57(iii) of IT Act. 12. Now we deal with and decide the alternative argument of ld. AR of assessee that even if expenses are held as not allowable against income from other sources, the same should be allowed against income from capital gain in the present year or future years. Regarding this argument, we would like to observe that for computing income from capital gains, deduction is allowable u/s. 48 and expenses which can be allowed as per this section are expenses incurred wholly and exclusively in connection with transfer of asset or cost of acquisition of asset or cost of any improvement of the concerned capital asset only. The claim of expenses in the present case is not for those expenses which are incurred on account of cost of transfer of asset or cost of acquisition of asset or c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of expenditure laid out or expended wholly and exclusively for the purpose of making or earning such income. The question for consideration, therefore, is whether the expenses of the type incurred by the Liquidator in this case can be said to have been incurred solely for the purpose of earning the interest income. It is true that the connection between the expenditure and the earning of income need not be direct and it may be indirect. But since the expenditure must have been incurred for the purpose of earning that income there should be some nexus between the expenditure and the earning of the income. There is not even some sort of an evidence to show that the expenses incurred by the Liquidator was to facilitate the earning or at least for protecting of the income. The interest accrues sui generis. The interest is payable by the bank whether it is claimed or not and whether there is any establishment or not. Normally there was no necessity for spending anything separately for earning the interest. However we may hasten to add that if any expenditure was incurred like commission for collection or such similar expenditures which may be considered as spent solely for the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and allowances under each head. No deduction or adjustment on account of any expenditure can be can made except as provided by the Act. The basic proposition that has to be borne in mind in this case is that it is possible for a company to have six different sources of income, each one of which will be chargeable to income tax. Profits and gains of business or profession is only one of the heads under which the company's income is liable to be assessed to tax. If a company has not commenced business, there cannot be any question of assessment of its profits and gains of business. That does not mean that until and unless the company commences its business, its income from any other source will not be taxed. If the company, even before it commences business, invests the surplus fund in its hand for purchase of land or house property and later sells it at profit, the gain made by the company will be assessable under the head 'Capital gains'. Similarly, if a company purchases a rented house and gets rent, such rent will be assessable to tax under Section 22 as income from House property. Likewise, a company may have income from other sources. It may buy shares and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned by it will depend upon the provisions of the Act. The expenditure would have been deductible as incurred for the purpose of business if the assessee's business had commenced. But that is not the case here. 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 are allowable as deduction under Section 57 of the Act. 12. Adverting to the judgments on which reliance had been placed by the learned counsel, suffice it to notice that in view of the subsequent judgment of the Hon'ble Apex Court in Vijaya Laxmi Sagar Mills Ltd's case (supra) and this Court in Consumer Electronics (Punjab) Ltd's case (supra), the pronouncements in Rampur Timber Turnery Co. Ltd. and Nakodar Bus Service (P) Ltd's cases (supra) would not come to the rescue of the appellant. 13. From the above, the legal position that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enied. The contention of the learned AR is that there is a direct nexus between the interest receipt from banks and interest payments to banks, and also this issue covered by the decision of the Agra Bench of the Tribunal in the case of Raj Kumar Agarwal (supra) . The interest expenditure is allowable as deduction when it is paid on monies used for acquiring asset from which income derived is assessable under the head income from other sources . The Hon ble Karnataka High Court in the case of Karnataka Forest Plantation v. CIT [(1985) 156 ITR 275 (Kar.)], wherein it was held by the Hon ble Court that when the assessee after borrowing amount for the purpose of business, had kept part of it in short deposit in bank, and the interest paid on amount borrowed was not deductible from interest earned from short term deposits, as borrowing was not for the purpose of earning such interest income. The Hon ble Karnataka High Court in the case of H.H.Maharajakumari Meenakshideviavaru v. CIT [(1984) 150 ITR 247 (Kar.)] , observed that the assessee had interest income from fixed deposits assessable under the head income from other sources but on account premature termination of such fixed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shideviavaru v. CIT (supra) . The assessee has also relied on the judgment of the Hon ble Delhi High Court in the case of CIT v. Uk Bose in ITA No.258/2010 dated 30th November, 2012, wherein the Hon ble High Court allowed the payment of interest on loan taken for purchase of an exempted asset. In that case, the assessee has received interest from Sahara India Corporation Limited, in respect of land sold to them against which the sales proceeds were received late, and on the other hand has also paid interest on loan obtained earlier for the purchase of the said land and the difference of the same has also been offered for the assessment in the revised return. The assessee was under wrong impression that since the sale of land was not taxable receipt in the hands of the assessee, it was presumed that the interest element also was not taxable and obtained proper legal advances and the same is being offered for assessment. The Assessing Officer was of the opinion that there was no provision in the Act to allow the interest paid against the interest received by the assessee. The Hon ble High Court was of the opinion that - Strictly speaking, in the present case it is not a ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether it is claimed or not and whether there is any establishment or not. Ordinarily there arises no necessity for spending anything separately for earning the interest. However, where any expenditure in the nature of commission or collection charges or such similar expenditure which may be essential and had been spent solely for the purpose of earning that income, the same would be deductible. 14. Examining to the factual matrix herein, there is nothing to show that the expenses claimed as deduction were incurred for earning interest income. Equally, the claim of the appellant that the expenditure incurred by the assessee was allowable under Sections 30 to 37 of the Act is inadmissible for the reason that the business of the assessee was lying closed and income from interest was chargeable to tax as 'income from other sources' under Section 56 of the Act. Once that was so, the Tribunal had rightly adjudicated the matter in favour of the revenue. 7.2 In view of the foregoing reasons and the precedents cited supra, I do not find any infirmity in the orders of the lower authorities, and accordingly, I uphold the same. 8. In the result, the appeals filed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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