INCOME TAX ACT, 1961

Section 57(iii)

Income from other sources - Disallowance of interest - Interest expenditure allegedly not expended wholly or exclusively for purpose of making or earning interest income -

Assessee showed interest income earned from various parties. AO alleged that assessee did not prove interest expenditure was laid out or expended wholly or exclusively for purpose of making or earning interest income, there was no connection with or relation to the interest income earned and the expenditure claimed were not as per section 57(iii). Accordingly, AO disallowed the interest expenditure. Held: In the given case, assessee did not incur expenditure directly linking interest income but incurred loss by arranging funds for earning the interest income. One cannot segregate the income alone without considering the object of the transaction or nature of the business of earning the interest income and expenses includes loss vice versa. No doubt that assessee was into arranging funds and earned interest income by refinancing to the other parties and difference in rates in refinancing was the income of assessee. It was the nature of business and all the expenditure incurred in earning the income was allowable expenditure. It was only characterization whether it was relating to expenses incurred to earn income or loss incurred in the process of making the income. Therefore, interest expenditure incurred by the assessee would fall under the category of loss. Therefore, it was allowed as an expenditure.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2011-12

INCOME TAX ACT, 1961

Section 14A

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