AKANSHA RANJU PILANI, MUMBAI V. ITO (IT) WD 4(1), MUMBAI

ITA 3597/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92966 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 26-03-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 07-05-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ASGHAR ZAIN
• Keywords: Gift; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUM BAI ., , BEFORE SHRI D. MANMOHAN, VP AND SHRI SANJAY ARORA, AM ./ I.T.A. NO. 3597/MUM/2013 ( / ASSESSMENT YEAR: 2010-11) AKANSHA RANJU PILANI FLAT NO.1, BUILDING NO.1, THE COLABA LAND CO. OP. HOUSING, SHORAB BARUCHA MARG, COLABA, MUMBAI-400 005 / VS. INCOME TAX OFFICER (I.T.) WARD 4(1), SCINDIA HOUSE, BALLARD ESTATE, MUMBAI 400 038 ' ./ ./PAN/GIR NO. AAMPG 8860 C ( '$ /APPELLANT ) : ( %&'$ / RESPONDENT ) '$ ' / APPELLANT BY : SHRI ISHWER PRAKASH RATHI %&'$' / RESPONDENT BY : MS. ASGHAR ZAIN ) *+',- / DATE OF HEARING : 26.03.2015 ./0',- / DATE OF PRONOUNCEMENT : 12.06.2015 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-11, MUMBAI (CIT(A) FOR SH ORT) DATED 28.02.2013, DISMISSING THE ASSESSEES APPEAL CONTESTING ITS ASSESSMENT U/S .143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A. Y.) 2010-11 VIDE ORDER DATED 11.01.2013. 2 ITA NO. 3597/MUM/2013 (A.Y. 2010-11) AKANSHA RANJU PILANI VS. ITO 2. THE ONLY ISSUE ARISING IN THE INSTANT APPEAL, AG ITATED PER ITS TWO GROUNDS, AS UNDER, IS THE MAINTAINABILITY OR OTHERWISE IN LAW OF THE A SSESSEES CLAIM OF INTEREST PAID ON BORROWED CAPITAL (FROM BANK) INVESTED IN A HOUSE PR OPERTY, AGAINST INTEREST INCOME ASSESSABLE U/S. 56, I.E., IN COMPUTING THE INCOME C HARGEABLE UNDER THE HEAD OF INCOME INCOME FROM OTHER SOURCES: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND AS PER THE PROVISIONS OF LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HAS ERRED IN CONFIRMING DISALLOWANCE OF RS.14,19,007/- BEING THE AMOUNT OF INTEREST PAID AND CLAIMED AS DEDUCTION AGAINST THE INTEREST RECEIPTS. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND A S PER THE PROVISIONS OF LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HAS FURTHER ERRED IN CONFIRMING APPLICATION OF SECTION 14A FOR DISALLOWING SUCH INTEREST, WHEREAS THE INVESTMENT WAS NOT MADE FOR E ARNING ANY EXEMPT INCOME. IT WAS MADE FOR ACQUIRING HOUSE PROPERTY. 3. THE ADMITTED FACTS ARE THAT THE ASSESSEES BORRO WING FROM BANK WAS TOWARD AND, IN FACT, UTILIZED FOR/INVESTED IN A RESIDENTIAL HOUSE, INCOME FROM WHICH IS ASSESSABLE U/S.22. THE PROPERTY BEING SELF OCCUPIED, THE ASSESSEE IN F ACT CLAIMED AND WAS ALLOWED INTEREST ON THE SAID HOME LOAN TO THE EXTENT PERMISSIBLE IN COMPUTING THE INCOME UNDER THE SAID HEAD OF INCOME FOR SUCH, I.E., SELF OCCUPIED, PROPE RTY, AT RS.1,50,000/-. THE BALANCE INTEREST (RS.14,19,007/-) WAS SET OFF AGAINST THE A SSESSEES INTEREST INCOME ON LOAN (AT RS.15,34,628/-) TO ONE, M/S. SHUBHAM INTERNATIONAL. THE BASIS OF THE ASSESSEES CLAIM IS THAT HAD HE WITHDRAWN HIS LOAN AND INVESTED IN THE HOUSE PROPERTY, HE WOULD NOT HAVE EARNED THE SAID INTEREST. CORRESPONDINGLY, HE WOULD NOT SUFFER INTEREST ON THE BANK BORROWING. IN FACT, THAT IS WHAT HE HAD INTENDED TO , BUT COULD NOT, AS HE WAS NOT ABLE TO RETRIEVE THE LOAN MONEY BACK FROM THE PERSON TO WHO M HE HAD LENT, IN TIME, NECESSITATING A TEMPORARY ARRANGEMENT BY WAY OF BANK BORROWING. H OWEVER, THE TWO ARRANGEMENTS ARE AT PAR, SO THAT INTEREST SUFFERED, I.E., IN EXCESS OF RS.1,50,000/- (RS.14.19 LACS), OUGHT TO BE ADJUSTED IN COMPUTING HIS ACTUAL INCOME. RELIANCE IS PLACED ON THE DECISION IN THE CASE OF RAJ KUMARI AGGARWAL V. DY. CIT (ITA NO. 176/AGRA/2013 DATED 18/7/2014), WHEREIN THE TRIBUNAL, IN A SIMILAR SITUATION, ALLOWED THE A SSESSEES CLAIM FOR INTEREST ON 3 ITA NO. 3597/MUM/2013 (A.Y. 2010-11) AKANSHA RANJU PILANI VS. ITO BORROWINGS AGAINST THE INTEREST ARISING ON BANK FDR S, ON THE SECURITY OF WHICH THE BORROWING WAS RAISED. 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 4.1 VIEWED FROM ANY ANGLE, THE ASSESSEES CASE IS M ISCONCEIVED AND NOT TENABLE IN LAW. TO BEGIN WITH, THE TOTAL INCOME UNDER THE ACT, I.E., CHARGEABLE TO TAX THERE-UNDER, IS TO BE COMPUTED BY CLASSIFYING IT, ACCORDING TO THE NATURE OF THE INCOME, UNDER VARIOUS HEADS OF INCOME, WITH THE INCOME NOT COVERED UNDER ANY SPECIFIC HEAD FALLING TO BE CLASSIFIED UNDER THE RESIDUARY HEAD, I.E., INCOME FROM OTHER SOURCES. FURTHER, INCOME UNDER ANY HEAD OF INCOME IS TO BE COMPUTED FOLLOWIN G THE COMPUTATION PROVISIONS AS SPECIFIED FOR THE RELEVANT HEAD, WHICH STAND CLASSI FIED AS VARIOUS PARTS OF CHAPTER IV OF THE ACT, I.E., CHAPTER IV-A TO IV-F. ONLY THE EXPEN DITURE/OUTGOINGS SPECIFIED UNDER THE RELEVANT HEAD OF INCOME AND, FURTHER, SUBJECT TO TH E CONDITIONS SPECIFIED IN RESPECT THEREOF, STAND TO BE ALLOWED IN COMPUTING THE INCOM E UNDER THAT HEAD OF INCOME. MERELY BECAUSE THE ASSESSEE MAY HAVE INCURRED AN EXPENDITU RE TOWARD OR IN RELATION TO AN INCOME FALLING UNDER A PARTICULAR HEAD OF INCOME, WOULD NO T BY ITSELF BE SUFFICIENT TO ALLOW THE SAME. IT WOULD BE SO ONLY WHERE THE SAME IS LISTED AS AN ADMISSIBLE DEDUCTION AND, TWO, SATISFIES THE CONDITION/S SPECIFIED FOR DEDUCTION, TO WHICH THE SAME IS THEREFORE SUBJECT. IN THE PRESENT CASE, SECTION 24(B) GOVERNS THE DEDUCTI ON ON ACCOUNT OF INTEREST ON BORROWED CAPITAL FOR THE PURPOSE OF ACQUIRING HOUSE PROPERTY OR IMPROVEMENT THERETO. THE SAME, HOWEVER, LIMITS THE DEDUCTION IN RESPECT OF SELF OC CUPIED PROPERTY (SOP) AT RS.1,50,000/-. THIS, IN FACT, EVEN AS OBSERVED DURING HEARING, IS WHAT HAD LED TO WHAT WE MAY TERM AS AN IMBALANCE AS PER THE ASSESSEES PLANS. BUT FOR TH IS LIMIT, THE ENTIRE INTEREST ON BORROWED CAPITAL (RS.15,69,007/-) WOULD STAND TO BE ALLOWED AGAINST INCOME UNDER CHAPTER IV-B, I.E., INCOME FROM HOUSE PROPERTY, RESULTING IN THE TWO ARRANGEMENTS, I.E., EITHER WITHDRAWING MONEY LENT AND SAVING INTEREST TO BANK, OR, ALTERNATIVELY, ASSUMING BORROWING FOR INVESTMENT IN HOUSE PROPERTY, BEING A T PAR, BOTH FINANCIALLY (PERHAPS, THAT IS THE INTEREST RATES ON BORROWING AND MONIES LEN T BEING NOT KNOWN), AS WELL AS UNDER THE TAX REGIME. ASSUMING A TAX EQUIVALENCE, WHILE N ONE EXISTED, THEN, THUS, REPRESENTS THE 4 ITA NO. 3597/MUM/2013 (A.Y. 2010-11) AKANSHA RANJU PILANI VS. ITO FUNDAMENTAL FALLACY IN THE ASSESSEES ARGUMENT AND CASE, I.E., THE UNDERLYING ASSUMPTION THAT THE TWO ARRANGEMENTS BEING FINANCIALLY EQUIVAL ENT (OR NEARLY SO), WOULD LEAD TO A SIMILAR OR SAME CONSEQUENCE IN LAW AS WELL. WE HAVE ALREADY CLARIFIED THAT INCOME UNDER THE ACT HAS TO BE NECESSARILY COMPUTED FOLLOWING TH E COMPUTATION PROVISIONS PRESCRIBED UNDER THE RELEVANT HEAD OF INCOME, I.E., UNDER WHIC H IT FALLS. THAT THE TWO ARRANGEMENTS MAY BE FINANCIALLY EQUIVALENT WOULD NOT NECESSARILY IMPLY, EVEN AS WAS FOUND BY US IN THE PRESENT CASE WITH REFERENCE TO THE LIMITATION P ROVISION FOR INTEREST QUA SOP, THAT IT SHALL BE SO UNDER LAW AS WELL. THAT A PARTICULAR AR RANGEMENT HAS DIFFERENT IMPLICATION/S IN LAW VIS-A-VIS AN EQUIVALENT FINANCIAL ARRANGEMENT, IS NO GROUND TO DISCARD OR NOT GIVE EFFECT TO A CLEAR PROVISION OF LAW, AGAINST WHICH T HERE IS EVEN OTHERWISE NO ESTOPPEL. THE DISALLOWANCE OF THE ASSESSEES CLAIM IS UNDER S. 24 (B) ITSELF AND, AT BEST, READ WITH S. 57(III), AND THERE IS NO NEED TO TRAVEL TO S. 14A O F THE ACT; THERE BEING NO INCOME NOT FORMING PART OF THE TOTAL INCOME FOR INVOCATION OF THE SAID SECTION, TO THOUGH EITHER NO BENEFIT TO THE ASSESSEE OR PREJUDICE TO THE REVENUE . 4.2 THE ISSUE UNDER REFERENCE IS IN FACT COVERED AG AINST THE ASSESSEE, AS AGAIN OBSERVED BY THE BENCH DURING HEARING, BY THE DECISION BY THE APEX COURT IN CIT VS. DR. V. P. GOPINATHAN [2001] 248 ITR 449 (SC). IN THE FACTS OF THAT CASE THE ASSESSEE HAD MONEYS IN FIXED DEPOSIT, ON WHICH IT EARNED INTEREST AT R S. 1,17,444/-. HE BORROWED ON THE SECURITY OF THE BANK DEPOSIT, PAYING INTEREST TO TH E BANK AT RS. 90,410/-, CLAIMING THAT HE BE TAXED ONLY ON THE DIFFERENTIAL AMOUNT OF RS.27,0 34/-. THE SAME BEING ALLOWED BY THE TRIBUNAL AND THE HONBLE HIGH COURT, THE REVENUE CA RRIED THE MATTER IN APPEAL BY SPECIAL LEAVE. THE CLAIM WAS NEGATIVED ON THE GROUND THAT I T HAD NO BASIS IN LAW, I.E., S. 57(III), INASMUCH AS THERE WAS NO NEXUS, AS IN THE PRESENT C ASE, BETWEEN THE INTEREST EARNED AND PAID. WOULD IT MATTER, THE COURT WONDERED, IF THE ASSESSE E HAD INSTEAD TAKEN A LOAN FROM A DIFFERENT BANK OR AGAINST ANY OTHER SECURITY ? THE INTEREST PAID DID NOT REDUCE THE INCOME BY WAY OF INTEREST ON FIXED DEPOSIT PLACED BY HIM W ITH THE BANK IN ANY MANNER. 5 ITA NO. 3597/MUM/2013 (A.Y. 2010-11) AKANSHA RANJU PILANI VS. ITO 4.3 COMING, NEXT, TO THE DECISION IN THE CASE OF RAJ KUMARI AGGARWAL (SUPRA). IN THE FACTS OF THAT CASE THE ASSESSEE BORROWED ON THE SEC URITY OF THE BANK FDRS, AND GIFTED THE AMOUNT TO HER SON. THE RATIONALE FOR THE SAME WAS E XPLAINED TO BE FINANCIAL INASMUCH AS A PREMATURE ENCASHMENT OF FDRS WOULD RESULT IN A LESS ER (NET) INTEREST ACCRUING TO HER. THE ADOPTED COURSE WAS EXHIBITED TO BE FINANCIALLY MORE PROFITABLE, I.E., EVEN AFTER ACCOUNTING FOR THE INTEREST ON THE LOAN AGAINST FDRS, WHICH BO RROWING WAS FINALLY LIQUIDATED OUT OF THE MATURITY PROCEEDS OF THE FDRS. THE INTEREST ON THE BORROWING WAS ALLOWED SET OFF OF AGAINST INTEREST ON FDRS IN COMPUTING INCOME U/S. 5 6. THE TWO CASES ARE THUS ONLY APPARENTLY SIMILAR, AND BEAR MATERIAL DIFFERENCES. THE BORROWING IN THAT CASE WAS NOT INVESTED IN ANY HOUSE PROPERTY OR TOWARD ANY SOURCE OF INCOME . HOW COULD, ONE MAY ASK, A BORROWING BE GIFTED ? THE ASSESSEE ONLY INTENDED TO, AND DID INDEED, GI FT THE PROPERTY REPRESENTED BY THE FDRS, BY, INSTEAD OF CLOSING THE FDRS PREMATURELY, BORROWING AGAINST THEM IN VIEW OF THE LATTER COURSE BEING MORE PROFIT ABLE, I.E., IN TERMS OF THE NET INTEREST INCOME. THE BORROWED CAPITAL COULD ONLY BE AND WAS MET FROM THE MATURITY PROCEEDS OF THE FDRS, EXTINGUISHING BOTH THE BORROWING/S AND TH E FDR/S SIMULTANEOUSLY. IT IS UNDER THESE CIRCUMSTANCES THAT THE TRIBUNAL HELD THE INTE REST PAID TO BANK AS TOWARD PROTECTING THE SAID SOURCE OF INCOME. THE FINDING IS CORRECT I N-AS-MUCH AS THE TWO, I.E., THE FDRS AND THE BORROWING THEREON, WERE INEXTRICABLY LINKED TO THE INCOME, FOR THE INTEREST (TO THE BANK) TO BE EXIGIBLE TO DEDUCTION AGAINST THE INTER EST ON THE FDRS. THE CLAIM WAS ALLOWED NOT ON THE BASIS OF ANY FINANCIAL EQUIVALENCE, AS C ONTENDED BY THE ASSESSEE BEFORE US, BUT OF A DIRECT NEXUS, MEETING, THUS, THE STIPULATION O F S. 57(III). THIS IS AS IT FOUND THAT THE BORROWING WOULD DIRECTLY IMPACT THE BANK INTEREST I NASMUCH AS IT (THE BORROWING) ONLY SAVED INTEREST. THE DECISION IN FACT HAS SUPPORT OF THE DECISIONS BY THE APEX COURT, AS IN CHALLAPALLI SUGARS LTD. V. CIT [1975] 98 ITR 167 (SC) AND TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. VS. CIT [1997] 227 ITR 172 (SC). IN THE PRESENT CASE, ON THE OTHER HAND, THE BANK BO RROWING HAS BEEN INVESTED TOWARD ANOTHER SOURCE OF INCOME, I.E., INCOME FROM HOUSE PROPERTY. THE SAME MAY NOT NECESSARILY RESULT IN ANY INCOME AND, IN ANY CASE, HAS NO RELATION TO THE INCOME BY WAY OF INTEREST ON THE BANK DEPOSIT, ON THE SECURITY OF WH ICH THE BORROWING WAS RAISED FOR 6 ITA NO. 3597/MUM/2013 (A.Y. 2010-11) AKANSHA RANJU PILANI VS. ITO INVESTMENT IN HOUSE PROPERTY, AND AGAINST WHICH INC OME THE INTEREST THEREON IS SOUGHT TO BE SET OFF. THAT THE ASSESSEE COULD HAVE INVESTED I N HOUSE PROPERTY OUT OF HIS SOURCES, IN WHICH CASE HE WOULD NOT HAVE SUFFERED INTEREST AT A LL, IS A DIFFERENT MATTER ALTOGETHER. THE TWO INVESTMENTS, I.E., HOUSE PROPERTY AND INTEREST BEARING LOAN, HAVE DIFFERENT INCOME POTENTIAL/IMPLICATIONS, AND CARRY DIFFERENT RISKS. THE TWO STREAMS OF INCOME, FLOWING FROM VASTLY DIFFERENT SOURCES, ARE SUBJECT TO DIFFERENT COMPUTATIONAL PROVISIONS UNDER THE ACT, AND BEAR DIFFERENT RISK PROFILES. TO SAY, THEREFORE , THAT INTEREST ON A BORROWING APPLIED TOWARD HOUSE PROPERTY BE DEDUCTED AGAINST THE INCOM E FROM THE PROPERTY ON THE SECURITY ON WHICH THE SAME IS RAISED, IS MISPLACED. RATHER, THE CLAIM OF INTEREST ON BORROWING APPLIED TO A PARTICULAR SOURCE OF INCOME (HOUSE PRO PERTY) AGAINST INCOME ARISING FROM THE SAID SOURCE OF INCOME, I.E., HOUSE PROPERTY (RS.1.5 0 LACS) AS WELL AS AGAINST INCOME FROM ANOTHER SOURCE, I.E., INCOME FROM OTHER SOURCES (AT RS.14.19 LACS), IS SELF CONTRADICTORY. THE BORROWING IS UNDERTAKEN ONLY FOR INVESTMENT IN HOUSE PROPERTY. THE ASSESSEE MAY HAVE HIS REASON FOR THE SAME, BUT THAT WOULD NOT OP ERATE TO ALTER OR CHANGE THE CHARACTER OF THE INCOME ARISING THERE-FROM, OR THE EXPENDITUR E INCURRED IN RELATION THERETO, AND WHICH SHALL THEREFORE, SUBJECT TO THE PROVISIONS OF THE ACT, STAND TO BE ALLOWED THERE- AGAINST, AS INDEED HAS BEEN IN THE INSTANT CASE. TH E SAID DECISION IS, THUS, DISTINGUISHABLE ON FACTS, EVEN AS WAS FOUND TO BE THE CASE BY THE A PEX COURT IN DR. V. P. GOPINATHAN (SUPRA) WITH REFERENCE TO THE FACTS IN THE CASE OF JASHVIDYABEN C. MEHTA V. CIT [1988] 172 ITR 680 (GUJ), AND WOULD BE OF NO ASSISTANCE IN THE FACTS OF THE PRESENT CASE. 5. IN THE RESULT, THE ASSESSEES APPEAL IS DISMISSE D. 20,34562,'2',7 ORDER PRONOUNCED IN THE OPEN COURT ON JUNE 12, 2015 SD/- SD/- (D. MANMOHAN) (SANJAY ARORA) / VICE PRESIDENT / ACCOUNTANT MEMBER ) + MUMBAI; 9 DATED : 12.06.2015 *.4../ ROSHANI , SR. PS 7 ITA NO. 3597/MUM/2013 (A.Y. 2010-11) AKANSHA RANJU PILANI VS. ITO !'#$%&' &$ / COPY OF THE ORDER FORWARDED TO : 1. '$ / THE APPELLANT 2. %&'$ / THE RESPONDENT 3. ) :, ( ) / THE CIT(A) 4. ) :, / CIT CONCERNED 5. =*>?%4,4@5 , -@50 , ) + / DR, ITAT, MUMBAI 6. ?6A+ / GUARD FILE ! / BY ORDER, / (DY./ASSTT. REGISTRAR) , ) + / ITAT, MUMBAI