INCOME TAX ACT, 1961

Section 56

Income from other sources - Taxability - Interest earned on fixed deposits - FD pledged for obtaining loan for business purpose

Assessee declared interest income on fixed deposits as business income. AO taxed the source as income from other sources. On the premise that fixed deposit was done out of surplus funds available at that time which was much earlier than the concerned assessment year, assessee's case was that fixed deposit was done in the earlier years and on the pledge of same assessee had obtained loans for the purpose of business and same was utilised for the purpose of business. Held: Fixed deposit was pledged for obtaining loan for the purpose of the business. It is common knowledge that loan obtained on the pledge of fixed deposit for the purpose of business, the rate of interest charged by bank slightly higher than interest being paid on fixed deposit. Why this aspect was not accepted by AO was not understood. Assessee had duly explained that by way of pledging FD's over draft for the purpose of business was obtained at the rate of interest 2% higher than F.D. rate. What more explanation was required for netting the interest expenditure is also beyond comprehension. Hence, view of AO to treat interest as income from other sources was not sustainable.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2013-14

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