The Tax Publishers2020 TaxPub(DT) 4724 (Mum-Trib)

INCOME TAX ACT, 1961

Section 36(1)(iii)

As there was a nexus between borrowed funds on which assessee had paid interest and investment on which it earned interest income, therefore, assessee was entitled to deduction of interest expenditure to the extent of interest income earned during the year.

Business deduction under section 36(1)(iii) - Interest on borrowed capital - Disallowance to the extent of interest income earned during the year -

Assessee claimed deduction under section 36(1)(iii). AO disallowed deduction to the extent assessee earned interest income from deposits with bank. Assessee's case was that deposits were out of balance of liquidating certain investments. Since assessee was under direct control of Special Court and all the issues were pending before Special Court. There was oral contract between parties to pay 12% per annum and whatever interest income earned by assessee were out of the surplus of the liquidation of certain investment. The investment as well as fund management were under the supervision of Special Court, and assessee had no role to play. Held: From the facts on record, prima facie, it appeared that there was a nexus between borrowed funds on which assessee had paid interest and investment on which it earned interest income. Therefore, assessee should get deduction of interest expenditure to the extent of interest income earned during the year.

Followed:Cascade Holdings (P) Ltd. v. Dy. CIT for assessment year 2012-13, 2013-14 & 2015- 16 in ITA No. 6965, 6966 & 6968/Mum/2018, dated 16-3-2020.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2013-14 to 2015-2016


INCOME TAX ACT, 1961

Section 234A Section 2234B Section 234C

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