Whether interest paid on a loan taken to avoid premature encashment of fixed deposit is deductible u/s 57(iii) against interest earned on fixed deposit?

Last updated: 19 August 2014

Court :
ITAT - Agra

Brief :
The assessee had made a fixed deposit of Rs 1,00,00,000 with ICICI Bank and earned interest of Rs 11,77,574 on these deposits. The assessee claimed a deduction of Rs4,36,705 on account of interest paid on loan of Rs 75,00,000 taken, on the securityof deposits and paid interest of Rs 4,36,705 thereon. The assessee contended that loan was taken to avoid premature encashment of the fixed deposit and the interest paid on the loan had to be deducted against the interest earned on the fixed deposit u/s 57(iii). The AO and CIT(A) rejected the assessee’s contention. Aggrieved the assesse filed an appeal before the tribunal. The tribunal held that S. 57(iii) allows a deduction of “any…expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income”. It is clear that as long as the expense is incurred wholly and exclusively for the purpose of earning an income, even if it is not necessarily for earning that income, it will still be deductible in computation of income.

Citation :
Raj KumariAgarwal(Deceased; through legal heir AnshuAgarwal) – Appellant – Versus - Deputy Commissioner of Income Tax - Respondent

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