The Tax Publishers2020 TaxPub(DT) 3417 (Karn-HC) : (2020) 428 ITR 0052 : (2020) 275 TAXMAN 0550

INCOME TAX ACT, 1961

Section 57(iii)

Where as per scheme of arrangement approved by High Court, assessee company was utilized as special purpose vehicle for purpose of distribution of surplus after clearance of debts of a company, considering that process of settlement was continuing, and surplus was deposited as fixed deposit in banks which earned interest, as there was close nexus between interest paid to creditors on unpaid balance and interest earned on deposits, assessee was entitled to section 57(iii) deduction.

Income from other sources - Assessee-company was utilized as a special purpose vehicle for restructuring as per scheme of arrangement approved by High Court - Interest earned on FDRs -

Assessee-company was utilized as a special purpose vehicle for restructuring of Kirloskar Electric Company Ltd. Under an arrangement, approved by Court. Surplus on non manufacturing and liquid assets including real estate were transferred to Special purpose vehicle for disbursement of liabilities. AO disallowed claim of interest paid to financial institutions, which was claimed as deduction under section 57.Held: Purpose of expenditure is relevant in determining the applicability of section, 57(iii) and purpose must be making and earning income. As per scheme of arrangement approved by High Court, assessee company was utilized as special purpose vehicle for purpose of distribution of surplus after clearance of debts of a company. Since process of settlement was continuing, surplus was deposited as fixed deposit in banks which earned interest, and assessee in order to cover cost of interest payable to creditors for unpaid period, invested surplus in fixed deposit and earned interest which was paid to lender or creditors, there was close nexus between interest paid to creditors on unpaid balance and interest earned on deposits, thus, assessee was entitled to section 57(iii) deduction.

REFERRED : JCIT. v. Rolta India Ltd. (2011) 330 ITR 470 (SC) : 2011 TaxPub(DT) 0806 (SC) CIT v. Lakshmi Machine Works (2007) 290 ITR 667 (SC) : 2007 TaxPub(DT) 1188 (SC) Apollo Tyres Ltd. v. CIT (2002) 122 TAXMAN 562 (SC) : 2002 TaxPub(DT) 1371 (SC) Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT (1997) 93 TAXMAN 502 (SC) : 1997 TaxPub(DT) 1304 (SC) CIT v. Rajendra Prasad Moody 1978) 115 ITR 519 (SC) : 1978 TaxPub(DT) 1028 (SC) Seth R. Dalmia v. CIT (1977) 110 ITR 644 (SC) : 1977 TaxPub(DT) 0943 (SC) CIT v. Messrs. Shoorji Vallabhdas & Company (1962) 46 ITR 144 (SC) : 1962 TaxPub(DT) 0307 (SC) Yokogawa India Ltd. v. DCIT ITA NO.87/2012 DATED 04.06.2020 : 2020 TaxPub(DT) 2473 (Karn-HC) Micro Inks Limited v. PCIT (2018) 407 ITR 681 (Guj) : 2017 TaxPub(DT) 4368 (Guj-HC) CIT v. Metal & Chromium Plater (P) Ltd, (2019) 415 ITR 123 (Mad) : 2016 TaxPub(DT) 5156 (Mad-HC) Hariram Hotels (P) Ltd. v. CIT (2016) 237 TAXMANN 564 (KARNATAKA) : 2016 TaxPub(DT) 1835 (Karn-HC) Rajeshwari Cotton Ginning & Pressing Industries v. ACIT (2016) 284 CTR 300 (KARNATAKA) : 2016 TaxPub(DT) 1072 (Karn-HC) Karnataka Instrade Corporation Ltd. v. ACIT (2015) 235 TAXMANN 374 (KARNATAKA) : 2015 TaxPub(DT) 4073 (Karn-HC) Vodafone South Ltd. (Formely Known As M/s. Vodafone South Essar And Hutchison Essar South Ltd) v. CIT (2015) 378 ITR 410 (Del) : 2015 TaxPub(DT) 3807 (Del-HC) The Totgars' Co-Operative Sale Society Ltd. v. ITO (2015) 231 TAXMANN 794 (KARNATAKA) CIT v. MSR & Sons Investments Ltd [I.T.A.No.769/2000 decided on 14.09.2011] CIT v. H.H. Maharani & Others (1975) 100 ITR 67 (Bom) : 1975 TaxPub(DT) 0207 (Bom-HC) Karnataka State Industrial Infrastructure Development Corporation Ltd. v. DCIT 2016 TaxPub(DT) 5230 (Bang-Trib)

SUBSCRIBE TaxPublishers.inSUBSCRIBE FOR FULL CONTENT