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Commissioner of Income-tax, Karnataka-ii, Bangalore Vs. Ananth G. Pai - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKarnataka High Court
Decided On
Case NumberIncome-tax Reference Case No. 171 of 1981
Judge
Reported in[1984]150ITR249(KAR); [1984]150ITR249(Karn)
ActsIncome Tax Act, 1961 - Sections 57
AppellantCommissioner of Income-tax, Karnataka-ii, Bangalore
RespondentAnanth G. Pai
Appellant AdvocateH. Raghavendra Rao, Adv.
Respondent AdvocateS.P. Bhat, Adv.
Excerpt:
.....as notified by the central government under the icds; that it is at variance and works at cross purposes and therefore it is bad. secondly, that when the scheme is sought to be implemented at the panchayat raj institutions level, the state government interfering with even the implementation of the scheme amounts to an unwarranted interference with the functioning of the panchayat raj institutions, which have been given a degree of autonomy and independence under the act. if one should have looked at the administrative part of icds programme, it becomes clear that the set up of anganawadi centres is taken up as a social welfare measure and under the ministry of social welfare of the central government. rural development and providing healthcare are the other two main objects of icds..........?' 2. during the previous year relevant to the assessment year 1977-78, the assessee withdrew his fixed deposit amount from a bank prematurely in order to invest the said amount on shares in companies. consequently, the assessee had to repay a sum of rs. 10,733 being the interest paid in excess by the bank. the assessee claimed deduction of the said sum under s. 57(iii) of the act in the assessment. this claim was negatived by the ito on the ground that there was no nexus between the payment of interest and the investment in shares. 3. on appeal, the aac allowed the assessee's claim. 4. the revenue preferred an appeal before the tribunal and the tribunal upheld the order of the aac. the department, being aggrieved by the order of the tribunal, has sought for the opinion of this court on.....
Judgment:

Rajasekhara Murthy, J.

1. The Income-tax Appellate Tribunal, Bangalore Bench, has referred the following question of law under s. 256(1) of the I.T. Act, 1961, for the opinion of this court :

'Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in law in holding that the sum of Rs. 10,733 be allowed as a deduction under section 57(iii) of the I.T. Act, 1961 ?'

2. During the previous year relevant to the assessment year 1977-78, the assessee withdrew his fixed deposit amount from a bank prematurely in order to invest the said amount on shares in companies. Consequently, the assessee had to repay a sum of Rs. 10,733 being the interest paid in excess by the bank. The assessee claimed deduction of the said sum under s. 57(iii) of the Act in the assessment. This claim was negatived by the ITO on the ground that there was no nexus between the payment of interest and the investment in shares.

3. On appeal, the AAC allowed the assessee's claim.

4. The Revenue preferred an appeal before the Tribunal and the Tribunal upheld the order of the AAC. The Department, being aggrieved by the order of the Tribunal, has sought for the opinion of this court on the question of law above referred to.

5. It is not in dispute that the assessee withdrew the amount from the fixed deposit before maturity for the purpose of purchase of shares. The assessee claimed a sum of Rs. 10,733 paid back by the assessee to the bank as an allowable deduction in the assessment. It is also not in dispute that the amount withdrawn was invested in the purchase of shares. The assessee had to repay a sum of Rs. 10,733, a portion of the interest paid to him in excess, on account of the premature termination of the fixed deposit.

6. The question is whether the interest repaid to the bank is an allowable expense under s. 57(iii) of the I.T. Act. The assessee had to pay back this interest on account of the withdrawal of the fixed deposit for the purpose of investment in shares. Under s. 57(iii) interest paid by an assessee for the purpose of investment in shares is an allowable expense. In the instant case, there is no difference between the withdrawal of the fixed deposit for the purpose of purchase of shares and the borrowing of money for that purpose on payment of interest. The assessee, instead of resorting to the latter, has availed of his fixed deposit by premature termination of the deposit. There is, therefore, no reason why he should not be given the benefit of s. 57(iii) of the Act. The Tribunal has correctly concluded in the matter.

7. Mr. H. Raghavendra Rao, learned counsel for the Revenue, however, relied upon the decision of this court in H.H. Maharaja kumari Meenakshideviavaru v. CIT (I.R.T.C. No. 183 of 1981, disposed of on November 17, 1983 : [1984]150ITR247(KAR) . That case, in our opinion, has no application to the facts of the present case, since the premature termination of the fixed deposit therein was not for the purpose of earning income by way of purchasing any asset. That was a plain case of withdrawal upon premature termination of fixed deposit and, consequently, repaying the excess interest to the bank. It was not shown in that case that the fixed deposit was prematurely withdrawn for the purpose of earning any income.

8. In the result, we answer the question in the affirmative and against the Revenue.


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