TMI Blog1987 (9) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... regard to the fact that the amount involved is Rs. 1,800 only, he does not press his claim in that behalf. Notwithstanding the concession made at the bar, we would prefer to indicate the reasons why we are of the view that the question must be answered against the assessee and in favour of the Revenue. Section 23(2) of the Income-tax Act, as it stood at the relevant point of time, was as under: " 23. (2) Where the property is in the occupation of the owner for the purposes of his own residence, the annual value shall first be determined as in sub-section (1) and further be reduced by one-half of the amount so determined or one thousand eight hundred rupees, whichever is less." We are not concerned with the proviso to the said section. On a plain reading of the above sub-section, it is obvious that the property in question must be in the occupation of the owner for her own residence to avail of the benefit of the said provision. In the present case, admittedly, the property in question was in the occupation of her cousin who was residing therein, albeit, rent-free. It is, therefore, clear that the assessee was not making use of the property for the purposes of her own r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee maintained three accounts in different names with M/s. Swastic Textile Distributors. The first account was in the name of Smt. Jashvidyaben Chandrakant Mehta, the second was in the name of Smt. Jashvidyaben Kantilal Choksi and the third was in the name of Jashvidyaben Kantilal (Trust-set). These accounts are collectively produced at annexure A-11. During the assessment year under reference, she borrowed a sum of Rs. 35,647 from Swastic Textile Distributors in the first account for the purposes of paying tax dues and meeting certain personal expenses. At the end of the year, an entry in the sum of Rs. 23,827 was made towards interest paid at 10% p.a. In the year in question, the assessee received interest income of Rs. 13,174, vide annexure " C ", and paid interest of Rs. 12,280, vide annexure " D ", out of total interest payment of Rs. 25,518. She, therefore, claimed a deduction of Rs. 12,280 out of the income of Rs. 13,174 received during the year. As against her claim of deduction of Rs. 12,280, the Income-tax Appellate Tribunal allowed deduction of Rs. 1,070 being the interest on Rs. 10,700 spent for purchase of shares. The assessee is, therefore, claiming deduction of the ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a creditor to the extent of Rs. 72,431.14, the amount to which she was indebted to M/s. Swastic Textile. Distributors as shown in the first account would stand depleted to that extent and she would be liable to pay interest on the reduced amount only. The authorities below have, however, come to the conclusion that the assessee had failed to establish that the expenditure (interest of Rs. 23,827) was incurred wholly or exclusively for the purpose of earning income and unless this was satisfied, no deduction could be allowed under section 57(iii) of the Income-tax Act. The Tribunal also came to the conclusion that the assessee bad failed to establish a nexus between the moneys borrowed and the interest income received. It, therefore, took the view that in view of the decision of this court in Smt. Padmavati Jaykrishna v. CIT [1975] 101 ITR 153 (now confirmed by the Supreme Court in Smt. Padmavati Jaikrishna v. Addl. CIT [1987] 166 ITR 176), the assessee was not entitled to the deduction claimed. The assessee, feeling aggrieved by this view, sought a reference under section 256(1) of the Income-tax Act on the question extracted above. In view of the above rival points of view and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, therefore, the question framed for determination must be answered in favour of the Revenue. If the question of deduction is strictly within the purview of section 57(iii) of the Act, the contention urged on behalf of the Revenue would undoubtedly have to be upheld in view of the decision of the Supreme Court in Smt. Padmavati's case [1987] 166 ITR 176. However, so far as the facts of the present case are concerned in regard to the interest claim of Rs. 5,102.36, we are of the opinion that the case does not fall strictly within the purview of section 57(iii) of the Act. It is, indeed, true that the assessee was maintaining three accounts with M/s. Swastic Textile Distributors but that was by way of convenience only. It is not the contention of the Revenue that by maintaining three accounts, the assessee had derived any benefit or advantage so far as her tax liability is concerned. For all practical purposes, therefore, the account with M/s. Swastic Textile Distributors was a single account and, therefore, we see force in the contention of Mr. Shah that, on the facts and circumstances of the case, the assessee could not be both a debtor and a creditor of M/s. Swastic Textile Dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the first of such dates next following the issuance thereof and at maturity. For the year ending March 31, 1969, the assessee filed a return admitting a net loss of Rs. 20,35,408 to be carried forward as business loss. The assessee claimed a total interest payment of Rs. 35,53,829 and claimed the loss to be carried forward, whereas the Income-tax Officer was of the view that the total claim was not allowable because the company was still under construction and so the borrowing was used only for capital construction and not for business purposes. Thereupon, counsel for the assessee requested the Income-tax Officer to allow at least the interest paid for the said period for which interest had been received. Accordingly, the net interest was worked out at Rs. 2,67,735. Adding further interest on the rupee capital, the interest was determined at Rs. 3,26,759 and deducting 20% of the salaries and other expenses as claimed and allowed in the preceding year, the net income was determined at Rs. 2,19,394. For the year 1970-71 also, the Income-tax Officer fixed the net interest at Rs. 6,97,428 and allowed an expenditure of Rs. 66,350 which is 20% of the other expenses amounting to Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, the interest income earned must be treated as business income. This contention was also negatived and the question was answered against the assessee. It thereafter proceeded to deal with the contention based on section 57(iii) of the Act. It came to the conclusion that as the borrowing was for putting up the plant and investment in the special account was only till the money was utilised for the said purpose or purchasing capital goods, the borrowing itself was not for the purpose of depositing the money and earning interest and hence the interest paid could not have any direct connection with the receipt of the interest. It further held that the interest paid by the assessee to the bank cannot be said to be an expenditure laid out or expended wholly and exclusively for the purpose of earning interest from the deposit which the assessee had made in the special account and the assessee was not entitled to deduction of interest paid on the borrowings from the interest received on the deposits under section 57(iii) of the Act. It will be seen from the judgment of the High Court that the interest earned by the assessee in the special account with the bank was an independent arr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the assessee is entitled to adjustment of Rs. 1,691 being the interest paid to the daughter and son in respect of the amount of dividend and the sale proceeds of share coupons and shares sold by the assessee which belonged to the children. By the sale of the share coupons and shares, the assessee received the price which she retained and which got merged with her other receipts. She invested the amount, that is, the sale price, along with her other amounts and earned interest thereon to the tune of Rs. 1,901. She allowed interest of Rs. 1,969 to her minor children on the sale price of share coupons and shares sold by her during the relevant period. The authorities below came to the conclusion that the assessee is not entitled to adjust this amount under section 57(iii) of the Act. On that, on the premise that the assessee had failed to establish any nexus between the money borrowed and the income received, we are of the view that the stand taken by the Revenue in this behalf is well-founded. The income of Rs. 1,901 was earned by the assessee by investing a certain amount whereas she paid interest of Rs. 1,691 to the children on the capital comprising dividends and the sale proce ..... 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