TMI Blog2019 (6) TMI 1695X X X X Extracts X X X X X X X X Extracts X X X X ..... able from the case of the assessee as in the referred judgment, the issue was pertained to receiving of dividend income on account of investment made in the companies which was assessable as income from other sources u/s. 56 of the act whereas the issue in the case of assessee is contribution made by the assessee in his capital account in the partnership firm and income from the partnership firm would be assessable under the head profit and gains of business. Thus we observe that as per specific provision of section 28(v) of IT Act any interest, salary etc. earned by a partner from a partnership firm is taxable under the head profit and gains of business or profession and there is no question of categorizing it under the head income from other sources. Therefore, we do not find any merit in the claim of the assessee for deduction u/s 57(iii) since there was no scope for treating such income earned from partnership firm as falling under the head income from other sources. We consider that eligibility for deduction u/s. 57(iii) arises only if expenditure is lead out wholly and exclusively for purpose of earning income which is chargeable under the head income other sources, theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred must be to earn income. The connection between the expenditure and the earning of income need not be direct even on indirect connection should prove the nexus between the expenditure incurred and the income. 7. The Commissioner (Appeals) erred in observing that interest paid is a capital expenditure. 8. The Commissioner (Appeals) ought to have restricted the disallowance of interest only on the opening balance in the capital account. 3. The grounds of appeal filed by the assessee are interconnected to the common issue of disallowance of interest u/s. 57(iii) of the act in respect of unsecured loan obtained for investment in the partnership firm. 4. The fact in brief is that return of income declaring loss of Rs. 14,97,969/- was filed on 27th Sep, 2013. Subsequently, the case was selected under scrutiny by issuing of notice u/s. 143(2) of the act on 3rd Sep, 2014. During the course of assessment on verification of computation of total income filed by the assessee, the assessing officer has noticed that assessee shown income of Rs. 810 from interest earned on saving bank account. Against the aforesaid income, the assessee has claimed deduction of Rs. 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ners capital account would have an opening debit balance as the appellant was a partner of this firm and has earned interest of Rs. 12,51,918/- in F.Y.2011-12 relevant to A.Y-2012-13. However, in the current year due to debit balance in the opening capital account of the appellant, the appellant has paid net interest to the firm to the extent of Rs. 3,29,327/-. This clearly shows that the appellant has withdrawn more money from the firm than actually invested and therefore, the appellant had to pay net interest to the partnership firm/firms during the year. In view of this, there is no basis in claim of the appellant that the money, borrowed has been utilised for investment in the partnership firm. The appellant has also argued that the shop which was purchased for Rs. 25 crores as a market value of Rs. 40 crores has no relevance to the claim of interest u/s. 57(iii). The argument of the appellant that it is not necessary to have income under the head income from other sources to claim deduction u/s.57(iii) of the Act is correct but it needs to be seen whether the appellant would be getting any income, may be in future which would be assessable as income from other sources. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, the argument of the appellant are not accepted and rejected. The grounds of appeal are accordingly dismissed. 6. We have heard the rival contention and perused the material on record. It is undisputed fact that assessee has obtained unsecured loan for investing in the partnership firm as contribution to his capital account. It is very clear as elaborated in the finding of the ld. CIT(A) that there was debit balance of assessee s capital account in the partnership firm as the opening debit balance was of Rs. 32,60,328/- and closing debit balance was of Rs. 1,08,07,884/-. The ld. CIT(A) has clearly demonstrated in his finding that due to the aforesaid debit balance in the capital account, the assessee has paid net interest to the partnership firm to the amount of Rs. 3,29,327/-. The aforesaid facts indicate that assessee has withdrawn more money from the partnership firm than actually invested in the partnership firm. Apart from the above, earning of interest income/share in the profit/remuneration from the partnership firm is assessed under the head profit and gains from business or profession and the assessee could not substantiate that how the income for making inv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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