Raj Kumari Agarwal, Agra V. Dy.C.I.T., Circle-2, Agra

ITA 176/AGR/2013

• Counselvise Citation: 17620314 RSA 2013
• Duration Of Justice: 1 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-07-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 05-06-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 27-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S D SHARMA
• Assessee Lawyers: ARVIND KUMAR BANSAL
• Keywords: Sale consideration of property below Jantri Value; Gift; Business income; Fair market value; Capital expenditure
• Section: 37; 143(3); 50C; 37(1)

Judgement Text

I.T.A. NO.: 176/AGRA/2013 ASSESSMENT YEAR: 2008-09 PAGE 1 OF 11 IN THE INCOME TAX APPELLATE TRIBUNAL, AGRA BENCH, AGRA [CORAM : PRAMOD KUMAR AM AND JOGINDER SINGH JM] I.T.A. NO.: 176/AGRA/2013 ASSESSMENT YEAR:2008-09 RAJ KUMARI AGARWAL .APPELLANT (DECEASED; THROUGH LEGAL HEIR ANSHU AGARWAL) 21/49, FREEGUNJ, AGRA 282 004 [PAN: ABRPA5577C] VS. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 2, AGRA .RESPONDENT APPEARANCES BY: ARVIND KUMAR BANSAL, FOR THE APPELLANT S D SHARMA, FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING :JUNE 5, 2014 DATE OF PRONOUNCING THE ORDER :JULY 18 TH , 2014 ORDER PER PRAMOD KUMAR: 1. THIS IS AN APPEAL FILED BY THE ASSESSEE AND IS D IRECTED AGAINST THE ORDER DATED 20 TH DECEMBER, 2012 PASSED BY THE LEARNED COMMISSIONER (APPEALS), IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TA X ACT, 1961, FOR THE ASSESSMENT YEAR 2008-09. 2. GROUND NO. 1, 4, 5 AND 6, BEING GENERAL IN NATUR E, DO NOT CALL FOR ANY ADJUDICATION AND ARE TREATED AS INFRUCTUOUS. 3. IN GROUND NO. 2, THE ASSESSEE HAS RAISED THE FOL LOWING GRIEVANCE :- I.T.A. NO.: 176/AGRA/2013 ASSESSMENT YEAR: 2008-09 PAGE 2 OF 11 BECAUSE THE AUTHORITIES BELOW HAS WRONGLY AND ARBIT RARILY HELD THAT THE SALES CONSIDERATION OF LAND SOLD BY THE AS SESSEE WAS NOT PROPER WITHOUT CONSIDERING THE REASONS GIVEN BY THE ASSESSEE FOR SELLING THE LAND FOR THE PRICE LESSER THAN THE CIRC LE RATE FIXED BY THE DISTRICT WAS TOO HIGH AND AS SUCH APPLICATION OF SE CTION 50C IS WRONG, ILLEGAL AND AGAINST THE FACTS OF THE CASE SP ECIALITY WHEN NO REFERENCE IS MADE TO THE VALUATION OFFICER. CIRCLE RATE WAS 258000/- SALES CONSIDERATION WAS 1,60,000 4. THE RELEVANT MATERIAL FACTS ARE AS FOLLOWS. DURI NG THE RELEVANT PREVIOUS YEAR, THE ASSESSEE HAD SOLD A PIECE OF LAND FOR STATED CO NSIDERATION OF RS.1,64,000. HOWEVER, SINCE STAMP DUTY VALUATION OF THIS LAND WA S RS.2,58,000, THE ASSESSING ADOPTED THE SAME FOR COMPUTATION OF LONG TERM CAPIT AL GAIN. THE ASSESSEES CONTENTIONS, INTER ALIA, TO THE EFFECT THAT THE STA TED CONSIDERATION WAS FAIR MARKET VALUE OF THE LAND IN QUESTION AS THE LAND WAS SITU ATED IN UNDERDEVELOPED AREA, THERE WAS UNAUTHORISED POSSESSION OF THE LAND AND AS THER E WERE NUMBER OF PITS IN THE LAND AND AS SUCH, THE CIRCLE RATE FIXED IN THE AR EA COULD NOT APPLY WAS SIMPLY BRUSHED ASIDE. AGGRIEVED, ASSESSEE CARRIED THE MATT ER IN APPEAL BUT LEARNED CIT(A) ALSO REJECTED THE GRIEVANCE OF THE ASSESSEE AND OBS ERVED THAT I FIND THAT THE AO WAS JUSTIFIED IN TAKING THE SALE CONSIDERATION AT R S.2,58,000 AS PER THE PROVISIONS OF SECTION 50 C BECAUSE THE ASSESSEE (APPELLANT) COULD NOT PRODUCE ANY EVIDENCE SHOWING THAT THE MARKET VALUE OF THE LAND WAS LESS THAN THE CIRCLE RATE. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US. 5. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 6. WE FIND THAT HERE IS A CASE IN WHICH THE ASSESSE E HAS SPECIFICALLY OBJECTED TO THE ADOPTION OF STAMP DUTY VALUATION RATE. THE MERE FACT THAT THE APPELLANT HAS NOT CHALLENGED THE STAMP DUTY VALUATION CANNOT BE PUT A GAINST THE ASSESSEE. THE AUTHORITY FOR THE THIS PROPOSITION IS CONTAINED IN, HONBLE JURISDICTIONAL HIGH COURTS JUDGMENT, IN THE CASE OF CIT VS CHANDRA NARAIN CHAUDHURI ([2013] 38 TAXMANN.COM 275 (ALLAHABAD) , WHEREIN THEIR LORDSHIPS HAVE OBSERVED THAT, THE QUESTION AS TO WHETHER THE ASSESSEE FILED ANY OBJEC TIONS BEFORE THE STAMP I.T.A. NO.: 176/AGRA/2013 ASSESSMENT YEAR: 2008-09 PAGE 3 OF 11 VALUATION AUTHORITY TO DISPUTE THE VALUATION, OR FI LED APPEAL OR REVISION OR MADE REFERENCE BEFORE ANY AUTHORITY, COURT OR THE H IGH COURT UNDER SUB SECTION (2) (B) OF SECTION 50 C OF THE ACT IS NOT O F ANY RELEVANCE IN THIS CASE, AS THE AO HIMSELF OBSERVED THAT THE ASSESSEE DID NOT D ISPUTE THE STAMP VALUATION BEFORE THE STAMP VALUATION AUTHORITY. THERE MAY BE SEVERAL REASONS FOR THE PURCHASER NOT TO FILE SUCH OBJECTION. A PURCHASER M AY NOT GO INTO LITIGATION, AND PAY STAMP DUTY, AS FIXED BY THE STAMP VALUATION AUTHORITY, WHICH MAY BE OVER AND ABOVE THE FAIR MARKET VALUE OF THE PROPERT Y, AS ON THE DATE OF TRANSFER, THOUGH THE AMOUNT SO DETERMINED HAS NOT BEEN ACTUAL LY RECEIVED BY OWNER OF THE PROPERTY . THE POSITION AS TO WHETHER REFERENCE SHOULD BE MADE TO THE DVO, EVEN WHEN THERE IS NO SPECIFIC PLEA TO THAT EFFECT BY THE ASSESSEE, IS NOW WELL SET OUT IN HONBLE CALCUTTA HIGH COURTS JUDGMENT IN THE CA SE OF SUNIL KUMAR AGARWAL CIT ( GA NO 3686/2013 IN ITAT NO 221/ 2013; JUDGMENT DA TED 13 TH MARCH 2014) , WHEREIN THEIR LORDSHIPS HAVE, INTER ALIA, OBSERVED AS FOLLOWS:- . WE ARE OF THE OPINION THAT THE VALUATION BY THE DEP ARTMENTAL VALUATION OFFICER, CONTEMPLATED UNDER SECTION 50C, IS REQUIRED TO AVOID MISCARRIAGE OF JUSTICE. THE LEGISLATURE DID NOT INT END THAT THE CAPITAL GAIN SHOULD BE FIXED MERELY ON THE BASIS OF THE VALUATIO N TO BE MADE BY THE DISTRICT SUB REGISTRAR FOR THE PURPOSE OF STAMP DU TY. THE LEGISLATURE HAS TAKEN CARE TO PROVIDE ADEQUATE MACHINERY TO GIV E A FAIR TREATMENT TO THE CITIZEN/TAXPAYER. THERE IS NO REASON WHY THE MA CHINERY PROVIDED BY THE LEGISLATURE SHOULD NOT BE USED AND THE BENEFIT THEREOF SHOULD BE REFUSED. EVEN IN A CASE WHERE NO SUCH PRAYER IS MAD E BY THE LEARNED ADVOCATE REPRESENTING THE ASSESSEE, WHO MAY NOT HAV E BEEN PROPERLY INSTRUCTED IN LAW, THE ASSESSING OFFICER, DISCHARGI NG A QUASI JUDICIAL FUNCTION, HAS THE BOUNDEN DUTY TO ACT FAIRLY AND TO GIVE A FAIR TREATMENT BY GIVING HIM AN OPTION TO FOLLOW THE COURSE PROVID ED BY LAW . 7. AS THERE IS NO BINDING JUDICIAL PRECEDENT CONTRA RY TO WHAT HAS BEEN HELD BY HONBLE CALCUTTA HIGH COURT, AS ABOVE, THE ESTEEMED VIEWS OF THEIR LORDSHIPS, EVEN THOUGH FROM A NON JURISDICTIONAL HIGH COURT, BIND U S AS WELL. 8. IN THE LIGHT OF THE ABOVE LEGAL POSITION, THE PL EA OF THE ASSESSEE, AS SET OUT IN THE GROUND OF APPEAL, IS INDEED WELL TAKEN. THE PRE VAILING LEGAL POSITION IS NOW LIKE THIS. ONCE THE ASSESSEE CLAIMS THAT THE ACTUAL MARK ET VALUE OF THE LAND OR BUILDING IS LESS THAN STAMP DUTY VALUATION ADOPTED BY THE AUTHO RITIES, IT IS INCUMBENT UPON THE I.T.A. NO.: 176/AGRA/2013 ASSESSMENT YEAR: 2008-09 PAGE 4 OF 11 ASSESSING OFFICER TO REFER THE VALUATION OF SAID LA ND OR BUILDING TO THE DEPARTMENTAL VALUATION OFFICER. IN THE PRESENT CASE, THE ASSESSI NG OFFICER HAS NOT DONE SO. IN VIEW OF THIS FACTUAL POSITION, AND IN THE LIGHT OF THE D ISCUSSIONS ABOVE, WE DEEM IT FIT AND PROPER TO REMIT THE MATTER TO THE FILE OF THE ASSES SING OFFICER FOR ADJUDICATION DE NOVO AFTER MAKING A REFERENCE TO THE DVO, AND COMPLETING THE ASSESSMENT ON THE BASIS OF THE VALUATION SO RECEIVED FROM THE DVO. WHILE SO DE CIDING THE MATTER AFRESH, THE ASSESSING OFFICER WILL DECIDE THE MATTER IN ACCORDA NCE WITH THE LAW, BY WAY OF A SPEAKING ORDER AND AFTER GIVING A REASONABLE OPPORT UNITY OF HEARING TO THE ASSESSEE. WE DIRECT SO. 9. GROUND NO. 2 IS THUS ALLOWED FOR STATISTICAL PUR POSES IN THE TERMS INDICATED ABOVE. 10. IN GROUND NO.3, THE ASSESSEE HAS RAISED THE FOL LOWING GRIEVANCE:- BECAUSE THE DISALLOWANCE OF REBATE OF INTEREST PAID TO THE BANK ON SECURITY OF FDR OF RS.436705/- IS WRONG AND ILLEGAL SPECIALLY WHEN THE CIRCUMSTANCES FOR TAKING THE LOAN WAS DULY EXPL AINED AND TO EARN MORE INCOME. 11. SO FAR AS THIS GRIEVANCE OF THE ASSESSEE IS CON CERNED, THE RELEVANT MATERIAL FACTS ARE LIKE THIS. DURING THE COURSE OF THE ASSES SMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT 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 T HESE DEPOSITS. HOWEVER, WHILE COMPUTING THE INCOME FROM OTHER SOURCES, THE ASSESS EE CLAIMED A DEDUCTION OF RS 4,36,705 ON ACCOUNT OF INTEREST PAID ON LOAN OF RS 75,00,000 TAKEN, ON THE SECURITY OF DEPOSITS. WHEN ASKED TO JUSTIFY THIS DEDUCTION, THE ASSESSEE SUBMITTED THAT THE ASSESSEE NEEDED HER FUNDS, AS SHE HAD TO GIVE MONEY TO HER SON AND WITH A VIEW TO AVOID PREMATURE ENCASHMENT OF THE FIXED DEPOSITS, F OR THAT PURPOSE, WHICH WOULD HAVE RESULTED IN NET LOSS TO HER, SHE TOOK A LOAN A GAINST FIXED DEPOSIT SO AS TO KEEP THE FIXED DEPOSIT INTACT AND EARN THE INTEREST INCO ME THEREON. IT WAS CONTENDED THAT THE INTEREST OF RS 4,36,705 THUS PAID ON THE BORROW INGS FROM ICICI BANK, AGAINST SECURITY OF FIXED DEPOSIT, WAS THUS MADE FOR THE PU RPOSE OF EARNING FDR INTEREST INCOME OF RS 11,77,574. THE ASSESSING OFFICER WAS, HOWEVER, NOT IMPRESSED WITH I.T.A. NO.: 176/AGRA/2013 ASSESSMENT YEAR: 2008-09 PAGE 5 OF 11 THIS PLEA. HE REJECTED THE CLAIM OF DEDUCTION FOR R S 4,36,705 WITH RATHER CRYPTIC OBSERVATIONS THAT, SINCE THE EXPENDITURE OF RS 4,3 6,705 BEING ACCRUED INTEREST ON LOAN HAS NOT BEEN LAID OUT OR EXPENDED WHOLLY AND E XCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING INCOME FROM FDRS, CLAIM OF THE AS SESSEE ISNOT CORRECT AND NOT ADMISSIBLE IN VIEW OF THE PROVISIONS OF SECTION 57 (III) OF THE ACT. AGGRIEVED BY THE STAND SO TAKEN BY THE ASSESSING OFFICER, ASSESSEE C ARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. LEARNED COMMISSIONER (APPEALS) UPHELD, AND IN FACT FORTIFIED, THE STAND OF THE ASS ESSING OFFICER, AND, WHILE DOING SO, OBSERVED AS FOLLOWS: 6.3 I HAVE CONSIDERED ALL THE FACTS RELATING TO DI SALLOWANCE OF INTEREST AS DISCUSSED BY THE AO IN THE ASSESSMENT ORDER AS W ELL AS THE ARGUMENT TAKEN BY THE ID. AR IN HIS WRITTEN SUBMISS ION. THE ONLY ARGUMENT OF THE ID. AR AGAINST THE DISALLOWANCE OF INTEREST CLAIMED BY THE APPELLANT OUT OF INTEREST INCOME ON FDRS BY NOT ENCASHING THE FDRS AND TAKING LOAN AGAINST THE FDRS FOR GIVING GIFT TO HER SON IS THAT SHE HAS SHOWN HIGHER INCOME FROM FDR BECAUSE IF SHE HAD ENCASHED FDRS FOR GIVING THE GIFT, NO INTEREST INCOME COULD HAVE BEEN ACCRUED TO THE ASSESSEE (APPELLANT) AND HENCE, IN VIEW OF THE LD. AR, IF ANY EXPENDITURE IS INCURRED IN PAYING INTEREST ON SUCH LOAN, IT SHO ULD BE ALLOWED AGAINST THE INTEREST INCOME EARNED BY THE ASSESSEE (APPELLA NT) FROM FDRS. HOWEVER, AGAINST SUCH ARGUMENT OF THE ID. AR, THE C ONTENTION OF THE AO AS DISCUSSED IN THE ASSESSMENT ORDER IS THAT THE IN TEREST PAID TO THE BANK IS RELATING TO A LOAN WHICH HAS NOT BEEN UTILI ZED FOR PURCHASING OF FDRS AND HENCE, SUCH INTEREST CANNOT BE CONSIDERED AS LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING OF INCOME FROM FDRS. AS PER SECTION 57(IIII), ANY E XPENDITURE (NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE) LAID OUT OR E XPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SU CH INCOME SHOULD BE ALLOWED DEDUCTION AGAINST THE 'INCOME FROM OTHER SO URCES'. THERE IS NO DISPUTE THAT INTEREST INCOME FROM FDR IS ASSESSABLE UNDER THE HEAD 'INCOME FROM OTHER SOURCES' AND HENCE, IF ANY DEDUC TION IS REQUIRED TO BE ALLOWED AGAINST SUCH INCOME, IT SHOULD BE ALLOWE D AS PER THE PROVISION PROVIDED UNDER THIS HEAD. FROM THE FACT O F THE CASE, IT IS VERY CLEAR THAT THE LOAN TAKEN FROM THE BANK HAS BEEN UT ILIZED FOR GIVING OF GIFT AND HENCE, SUCH LOAN CANNOT BE CONSIDERED TO HAVE B EEN UTILIZED FOR PURCHASE OF FDRS AND, THEREFORE, IF ANY INTEREST IS PAID ON SUCH LOAN, IT COULD NOT BE SAID TO HAVE BEEN LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING OF INCOME AS INTEREST FROM FDRS. I.T.A. NO.: 176/AGRA/2013 ASSESSMENT YEAR: 2008-09 PAGE 6 OF 11 THEREFORE, I FIND THAT THE AO IS CORRECT IN HOLDING THAT THE INTEREST PAID ON THE LOAN TAKEN FROM BANK FOR THE PURPOSE OF GIVI NG GIFT TO SON OF THE ASSESSEE (APPELLANT), CANNOT BE ALLOWED AS DEDUCTIO N U/S.57(III) AGAINST THE INTEREST INCOME ON FDRS AND THE LD. AR IS NOT J USTIFIED IN TAKING UP THE ARGUMENT THAT THE ASSESSEE (APPELLANT) HAS SHOW N HIGHER INCOME ON FDRS BY TAKING LOAN AGAINST THE FDRS FROM THE BANK. THE MONEY OF THE FDRS BELONGED TO THE ASSESSEE AND SHE CAN UTILIZE T HIS MONEY IN THE MANNER AS SHE WANTS TO USE IT WHETHER BY ENCASHING IT. OUT RIGHTLY OR BY TAKING LOAN OUT OF SUCH FDRS, BUT ANY CLAIM OF THE EXPENDITURE AGAINST A PARTICULAR INCOME CAN BE ALLOWED AS PER THE PROVISI ON OF INCOME-TAX ACT ONLY AND FROM THE FACT OF THIS CASE, IT IS VERY CLE AR THAT THE INTEREST PAID ON LOAN TAKEN FROM BANK CANNOT BE ALLOWED AGAINST T HE INTEREST INCOME OF THE FDRS U/S.57(III) BECAUSE IT COULD NOT BE SAI D TO HAVE BEEN LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING OF INCOME AS INTEREST FROM FDRS. THEREFORE, I CONFIRM THE DECISION OF THE AO FOR DISALLOWING THE INTEREST OF RS.4,36,705/ U /S.57(III) AGAINST THE INTEREST INCOME ON FDRS AND HENCE, THE ADDITION OF RS.4,36,705/ IS CONFIRMED AND ACCORDINGLY, GROUND NO.3 IS DISMISSED . 12. THE ASSESSEE IS NOT SATISFIED WITH THE ORDER OF THE LEARNED COMMISSIONER (APPEALS) AS WELL, AND IS IN FURTHER APPEAL BEFORE US. 13. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 14. LET US FIRST TAKE A LOOK AT THE UNDISPUTED FACT UAL POSITION, IN THE BACKDROP IN WHICH THE ASSESSEE RESORTED TO BORROWINGS AGAINST T HE SECURITY OF FIXED DEPOSITS IN QUESTION, WHICH IS SET OUT IN ASSESSEES SUBMISSION S DATED 19 TH DECEMBER 2012, AS REPRODUCED AT PAGES 7 AND 8 OF LEARNED CIT(A)S ORD ER. THE RELEVANT PART OF THESE SUBMISSIONS IS AS FOLLOWS: THAT THE ASSESSEE HAS TAKEN THE LOAN FROM ICICI BAN K OF RS.75,00,000/- - WHICH WAS TAKEN ON SECURITY OF FDRS LYING WITH THE BANK AND AMOUNT WAS GIFTED TO SHRI ASHU AGARWAL. AS REGARD DISALLOW ANCE OF INTEREST PAID I.T.A. NO.: 176/AGRA/2013 ASSESSMENT YEAR: 2008-09 PAGE 7 OF 11 ON LOAN IS CONCERN THE SAME SHOULD NOT BE DISALLOWE D AS THE ASSESSEE HAS SHOWN FULL INTEREST ON THE TOTAL FDR, AS SUCH T HE NET OF THE INTEREST RECEIVED AND PAID SHOULD BE TAXED. IT IS TO CLEAR HERE THAT THE FDR WAS PURCHASED BY T HE ASSESSEE LAST YEAR ON WHICH THE INTEREST RATE WAS 11.10% WHILE AT THE TIME OF TAKING THE LOAN THE INTEREST WAS OF 9.5% AND TO SAVE THE HIGHER INT EREST THE ASSESSEE HAS NOT ENCASHED THE SAME OTHERWISE THE GROSS INTER EST WOULD BE LESSER THAN WHAT THE NET INTEREST IS SHOWN AS THE ASSESSEE HAS TO GET INTEREST MUCH LESS WHAT SHE RECEIVED UP TO THE PERIOD OF TAK ING LOAN WHICH HAS TO BE WORKED OUT BY THE BANK ON THE BASIS OF THE DU RATION OF FDR REMAINED BY THE BANK UP TO THE DATE OF TAKEN LOAN W HICH SHALL BE ONLY ABOUT 6% BEING FOR LESS THAN 6 MONTH PERIOD. A WORK ING OF INTEREST COULD BE EARNED IF THE FDR WAS ENCASHED ON THE DATE OF TA KING THE LOAN IS GIVEN AS BELOW: INTEREST ON 1,00,00,000/- @ 6% I.E. 01.04.2007 TO 3 0.07.2007 RS.2,00,000/- 5000000/- @ 6% I.E. 01.08.2007 TO 18.03.2008 RS.1 ,87,500/- 2500000/- @ 9% I.E. 18.03.2008 TO 31.03.2008 RS. 9,375/- RS.3,96,875/- THAT FROM THE PERUSAL OF THE RECORD YOU WILL FIND T HAT THE ASSESSEE HAS SHOWN INTEREST OF RS.736625/- (RS.1173330/- MINUS 4 36705/- INTT. PAID ON LOAN) WHILE IF THE ASSESSEE ENCASHED THE FDR FOR GI VING GIFT TO SON THEN THE INTEREST ON FDR WOULD BE 538481/- I. E. INTERES T ON FDR ENCASHED ON 20.07.2007 OF RS.5000000/- RS.141606/- PLUS RS.3968 75/- AS WORKED OUT ABOVE. THUS IT IS CLEAR THAT THE ASSESSEE HAS TAKEN THE LO AN ON FDR TO SAVE THE INCOME EARNED AND THE ASSESSEE HAS SHOWN HIGHER INC OME WHAT SHE WOULD HAVE TO EARN WHEN SHE ENCASHED THE FDR FOR MA KING GIFT IN PLACE OF TAKEN LOAN. FROM THE ABOVE IT IS CLEAR THAT DUE TO PAYMENT OF I NTEREST ON LOAN AGAINST FDR THE RECEIVABLE IS MORE THAN WHAT CAN BE EARNED ON ENCASHMENT OF THE FDR AT THE TIME OF GIFTING THE AMOUNT. I.T.A. NO.: 176/AGRA/2013 ASSESSMENT YEAR: 2008-09 PAGE 8 OF 11 15. THERE IS NO DISPUTE THAT INTEREST INCOME IN THI S CASE IS TO BE TAXED AS AN INCOME FROM OTHER SOURCES. SECTION 57(III) OF THE ACT CLEARLY PROVIDES THAT THE INCOME CHARGEABLE UNDER THE HEAD INCOME FROM OTH ER SOURCES IS TO BE COMPUTER MAKING THE......DEDUCTION, NAMELY ..( INTER ALIA)... ANY...EXPENDITURE (NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE) LAID O UT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SU CH INCOME . IT IS THUS CLEAR THAT AS LONG AS AN EXPENDITURE IS INCURRED WHOLLY O R EXCLUSIVELY FOR THE PURPOSE EARNING AN INCOME, SUCH AN EXPENDITURE CONSTITUTES AN ADMISSIBLE DEDUCTION IN COMPUTATION OF THE INCOME. 16. THE QUESTION THAT WE REALLY NEED TO ADJUDICATE ON IS, THEREFORE, WHETHER OR NOT INCOME PAID ON INTEREST AGAINST THE FIXED DEPOSITS CAN BE SAID TO HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING INTEREST INCOME FROM FIXED DEPOSITS. 17. THE LEGAL CONNOTATIONS OF EXPRESSION WHOLLY AN D EXCLUSIVELY CAME UP FOR CONSIDERATION BEFORE A COORDINATE BENCH OF THIS TRI BUNAL, THOUGH IN THE CONTEXT OF DEDUCTIONS FROM BUSINESS INCOME, AND THE COORDINATE BENCH, EXTENSIVELY REPRODUCING FROM BINDING JUDICIAL PRECEDENTS, OBSER VED AS FOLLOWS IN THE CASE OF AJAY SINGH DEOL VS. JCIT [(91 ITD 196) 2004]: 8. WE FIND GUIDANCE FROM A PASSAGE FROM THE JUDGMEN T OF HOUSE OF LORDS IN THE CASE OF ATHERTON VS. BRITISH INSULATED & HELSBE Y CABLES LTD. (1925) 10 TAX CASES 155 (HL), REFERRED TO WITH APPROVAL BY THE HO NBLE SUPREME COURT IN THE CASE OF CIT VS. CHANDULAL KESHAVLAL & CO. (1960) 38 ITR 601 (SC), WHICH READS AS FOLLOWS: 'IT WAS MADE CLEAR IN THE ABOVE CITED CASES OF USHE RS WILSHIRE BREWERY VS. BRUCE (SUPRA) AND SMITH VS. INCORPORATED COUNCI L OF LAW REPORTING (1914) 6 TAX CASES 477 THAT A SUM OF MONEY EXPENDED NOT WITH A NECESSITY AND WITH A VIEW TO DIRECT AND IMMEDIATE B ENEFIT TO THE TRADE, BUT VOLUNTARILY AND ON THE GROUNDS OF COMMERCIAL EX PEDIENCY AND IN ORDER TO INDIRECTLY FACILITATE, CARRYING ON OF BUSI NESS MAY YET BE EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE TRADE; AND IT APPEARS TO ME THAT THE FINDINGS OF THE CIT IN THE P RESENT CASE, BRING THE I.T.A. NO.: 176/AGRA/2013 ASSESSMENT YEAR: 2008-09 PAGE 9 OF 11 PAYMENT IN QUESTION WITHIN THAT DESCRIPTION. THEY F OUND (IN WORDS WHICH I HAVE ALREADY QUOTED) THAT PAYMENT WAS MADE FOR TH E SOUND COMMERCIAL PURPOSE OF ENABLING THE COMPANY TO RETAI N THE EXISTING AND FUTURE MEMBERS OF STAFF AND FOR INCREASING THE EFFI CIENCY OF THE STAFF; AND AFTER REFERRING TO THE CONTENTION OF THE CROWN THAT THE SUM OF STERLING POUND 31,784 WAS NOT MONEY WHOLLY AND EXCL USIVELY LAID OUT FOR THE PURPOSE OF THE TRADE UNDER THE RULE ABOVE REFER RED TO, THEY FOUND DEDUCTION WAS ADMISSIBLE-THUS IN EFFECT, THOUGH NOT IN TERMS, NEGATIVING THE CROWNS CONTENTIONS. I THINK THAT THERE WAS AMPL E MATERIAL TO SUPPORT THE FINDINGS OF THE CIT, AND ACCORDINGLY HOLD THAT THIS PROHIBITION DOES NOT APPLY.' IT WILL, THEREFORE, BE CLEAR THAT EVEN IF AN EXPENS E IS INCURRED VOLUNTARILY, IT MAY STILL BE CONSTRUED AS WHOLLY AND EXCLUSIVELY. EXP LAINING THIS PRINCIPLE, HONBLE SUPREME COURT HAS, IN THE CASE OF SASSOON J DAVID & CO. (P) LTD. VS. CIT (1979) 118 ITR 261 (SC) INTER ALIA OBSERVED THAT : 'IT HAS TO BE OBSERVED HERE THAT THE EXPRESSION 'WH OLLY AND EXCLUSIVELY' USED IN S. 10(2)(XV) OF THE ACT DOES NOT MEAN 'NECE SSARILY'. ORDINARILY, IT IS FOR THE ASSESSEE TO DECIDE WHETHER ANY EXPENDITU RE SHOULD BE INCURRED IN THE COURSE OF HIS OR ITS BUSINESS. SUCH EXPENDITURE MAY BE INCURRED VOLUNTARILY AND WITHOUT ANY NECESSITY AND IF IT IS INCURRED FOR PROMOTING THE BUSINESS AND TO EARN PROFITS, THE ASS ESSEE CAN CLAIM DEDUCTION UNDER S. 10(2)(XV) OF THE ACT EVEN THOUGH THERE WAS NO COMPELLING NECESSITY TO INCUR SUCH EXPENDITURE. IT IS RELEVANT TO REFER AT THIS STAGE TO THE LEGISLATIVE HISTORY OF S. 37 OF T HE IT ACT, 1961, WHICH CORRESPONDS TO S. 10(2)(XV) OF THE ACT. AN ATTEMPT WAS MADE IN THE IT BILL OF 1961 TO LAY DOWN THE 'NECESSITY' OF THE EXPENDIT URE AS A CONDITION FOR CLAIMING DEDUCTION UNDER S. 37. SEC. 37(1) IN THE B ILL READ 'ANY EXPENDITURE LAID OUT OR EXPENDED WHOLLY, NECESSAR ILY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR PRO FESSION SHALL BE ALLOWED.' THE INTRODUCTION OF THE WORD 'NECESSARIL Y' IN THE ABOVE SECTION RESULTED IN PUBLIC PROTEST. CONSEQUENTLY, W HEN S. 37 WAS FINALLY ENACTED INTO LAW, THE WORD 'NECESSARILY' CAME TO BE DROPPED. THE FACT THAT SOMEBODY OTHER THAN THE ASSESSEE IS ALSO BENEF ITED BY THE EXPENDITURE SHOULD NOT COME IN THE WAY OF AN EXPEND ITURE BEING ALLOWED BY WAY OF DEDUCTION UNDER S. 10(2)(XV) OF T HE ACT IF IT SATISFIES OTHERWISE THE TESTS LAID DOWN BY LAW.' 18. IT IS THUS 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. WHAT THUS LOGICALLY FOLLOWS IS THAT EVEN IN A SITUATION IN WHICH PROXIMATE OR I MMEDIATE CAUSE OF AN EXPENDITURE WAS AN EVENT UNCONNECTED TO EARNING OF THE INCOME, IN THE SENSE THAT THE EXPENDITURE WAS NOT TRIGGERED BY THE OBJECTIVE TO E ARN THAT INCOME, BUT THE I.T.A. NO.: 176/AGRA/2013 ASSESSMENT YEAR: 2008-09 PAGE 10 OF 11 EXPENDITURE WAS, NONETHELESS, WHOLLY AND EXCLUSIVEL Y TO EARN OR PROTECT THAT INCOME, IT WILL NOT CEASE TO BE DEDUCTIBLE IN NATURE. IT IS ALSO IMPORTANT TO BEAR IN MIND THE FACT THAT A BORROWING AGAINST FIXED DEPOSIT CANNOT BE CO NSIDERED IN ISOLATION OF A FIXED DEPOSIT ITSELF INASMUCH AS, GOING BY THE ADMITTED F ACTS OF THIS CASE, THE INTEREST CHARGEABLE ON THE FIXED DEPOSIT ITSELF IS LINKED TO THE INTEREST ACCRUING AND ARISING FROM THE FIXED DEPOSIT. ON THESE FACTS, IN ORDER TO PROTECT THE INTEREST EARNINGS FROM FIXED DEPOSITS AND TO MEET HER FINANCIAL NEEDS, WHE N AN ASSESSEE RAISES A LOAN AGAINST THE FIXED DEPOSITS, SO AS TO KEEP THE SOURC E OF EARNING INTACT, THE EXPENDITURE SO INCURRED IN WHOLLY AND EXCLUSIVELY TO EARN THE F IXED DEPOSIT INTEREST INCOME. THE AUTHORITIES BELOW WERE APPARENTLY SWAYED BY THE FAC T THAT THE BORROWINGS WERE TRIGGERED BY ASSESSEES FINANCIAL NEEDS FOR PERSONA L PURPOSES AND, BY THAT LOGIC, THE BORROWING CANNOT BE SAID TO BE WHOLLY AND EXCLUSIVE LY FOR THE PURPOSES OF EARNING INTEREST INCOME, BUT WHAT THIS APPROACH OVERLOOKS I S WHETHER THE EXPENDITURE IS INCURRED FOR DIRECTLY CONTRIBUTING TO THE BEGINNING OF OR TRIGGERING THE SOURCE OF INCOME OR WHETHER THE EXPENDITURE IS FOR PROTECTIN G, AND THUS KEEPING ALIVE, THAT SOURCE OF INCOME, IN EITHER CASE IT IS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING THAT INCOME. THE ASSESSEE IN DEED REQUIRED THAT MONEY, SO RAISED BY BORROWING AGAINST THE FIXED DEPOSITS, FOR HER PERSONAL PURPOSES BUT THATS NOT RELEVANT FOR THE PRESENT PURPOSES. THE ASSESSEE COULD HAVE GONE FOR PREMATURE ENCASHMENT OF BANK DEPOSITS, AND THUS ENDED THE SOU RCE OF INCOME ITSELF, AS WELL, BUT INSTEAD OF DOING SO, SHE RESORTED TO BORROWINGS AGAINST THE FIXED DEPOSIT AND THUS PRESERVED THE SOURCE OF EARNING. THE EXPENDITU RE SO INCURRED, IN OUR CONSIDERED VIEW, IS AN EXPENDITURE INCURRED WHOLLY AND EXCLUSI VELY FOR EARNING FROM INTEREST ON FIXED DEPOSITS. WE ARE ALIVE TO THE FACT THAT IN TH E CASE OF A BUSINESS ASSESSEE, AND IN A SITUATION IN WHICH THE BORROWINGS AGAINST FIXE D DEPOSITS WERE RESORTED TO FOR USE IN BUSINESS, CONSIDERATION FOR END USE OF FUNDS SO BORROWED WOULD BE RELEVANT BECAUSE THE INTEREST DEDUCTION IS CLAIMED AS A BUSI NESS DEDUCTION UNDER SECTION 36(1)(III). THAT ASPECT OF THE MATTER, HOWEVER, IS ACADEMIC IN THE PRESENT CONTEXT AS THE LIMITED ISSUE FOR OUR CONSIDERATION IS WHETHER OR NOT, ON THE FACTS BEFORE US, THE INTEREST ON BORROWINGS AGAINST THE FIXED DEPOSITS C OULD BE SAID TO PROTECT THE INTEREST INCOME FROM FIXED DEPOSIT INTEREST AND THUS, INCURR ED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF EARNING SUCH INCOME. I.T.A. NO.: 176/AGRA/2013 ASSESSMENT YEAR: 2008-09 PAGE 11 OF 11 19. FOR THE REASONS SET OUT ABOVE, IN OUR CONSIDERE D VIEW, THE ASSESSEE DESERVES TO SUCCEED ON THIS ISSUE AS WELL. WE UPHOLD HER GRI EVANCE AND, ACCORDINGLY, DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED DISALL OWANCE. 20. GROUND NO. 3 IS THUS ALLOWED. 21. IN THE RESULT, THE APPEAL IS ALLOWED IN THE TER MS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT TODAY ON 18 TH DAY OF JULY, 2014. SD/- SD/- JOGINDER SINGH PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) AGRA, THE 18 TH DAY OF JULY, 2014. COPIES TO : (1) THE APPELLANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ETC ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AGRA BENCH, AGRA