| The Tax Publishers2020 TaxPub(DT) 3579 (Del-Trib) INCOME TAX ACT, 1961
Section 57(iii)
Where assessee utilized interest-bearing funds for the purpose of making investment/giving advances to the sister concern on interest, which was charged to tax under the head income from other sources, assessee was entitled to deduction under section 57 (iii) of any expenditure which was not in the nature of capital expenditure, as it was laid out and expended wholly and exclusively for the purpose of making or earning such income.
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Income from other sources - Deduction on interest on unsecured loans - Interest earned on advances to sister concern, whether can be alleged to be capital in nature -
Issue was as regards disallowance of interest expenditure made by AO. Reason of disallowance given by revenue was that assessee incurred interest cost of Rs. 37,69,82,874 on unsecured loans amounting to Rs. 512 crores and assessee has earned interest of Rs. 37,69,51,117 on loans and advances of Rs. 344 crores. Therefore, according to revenue, it was apparent that difference of Rs. 512 crores of unsecured loan on which interest was paid was not commensurate with interest received on loans and advances of Rs. 344 crores. Held: Any expenditure incurred by assessee which is not in the nature of capital expenditure, if laid out and expended wholly and exclusively for the purpose of making or earning any income which is chargeable to tax under head 'Income from other sources' is allowable as deduction to the assessee under section 57(iii). Assessee submitted a chart of interest charged which also supported view that advances given to sister concern or associated concerns at interest, were sourced from interest-bearing loans obtained by assessee. It was also undisputed fact that total interest received by the assessee of Rs. 37,69,82,874 was taxed under the head 'Income from other sources' by revenue. As assessee utilized interest-bearing funds for the purpose of making investment/giving advances to the sister concern on interest, which is charged to taxed under the head 'Income from other sources', assessee was entitled to deduction under section 57 (iii) of any expenditure which was not in the nature of capital expenditure, if it is laid out and expended wholly and exclusively for the purpose of making or earning such income. Undisputedly, there was no claim by the revenue that above expenditure was in the nature of capital expenditure. Interest income earned by the assessee was from loans and advances given to sister concern which was shown by assessee to be financed by obtaining loan on interest from other parties. Therefore, such interest paid on unsecured loan was laid out and expended wholly and exclusively for the purpose of making an earning such interest income.
REFERRED : CIT (Large Tax Payer Unit) v. Reliance Industries Ltd. (2019) 410 ITR 466 (SC) : 2019 TaxPub(DT) 659 (SC), Radhasoami Satsang v. CIT (1992) 193 ITR 321 (SC) : 1992 TaxPub(DT) 858 (SC), Dinesh H. Valecha v. Dy. CIT (2019) 109 Taxmann.com 331 (Mum) : 2019 TaxPub(DT) 6638 (Mum-Trib), Priapus Developers (P) Ltd. v. Asstt.CIT, Circle 20 (1) 2019 TaxPub(DT) 2429 (Del-Trib), Asstt. CIT, Circle 17 (1), New Delhi v. Vireet Investment (P) Ltd. (ITA Number 502/Del/2012) : 2017 TaxPub(DT) 1760 (Del-Trib) and Jt. CIT v. Sumatinath Enterprises (2005) 1 SOT 312 (Mum-Trib) : 2005 TaxPub(DT) 572 (Mum-Trib).
FAVOUR : In assessee's favour.
A.Y. : 2016-17
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