Interest paid to earn Interest is deductible under section 57

Pr. CIT Vs Jubilant Energy Nelp-V- Pvt. Ltd. (Delhi High Court)

Money received by the respondent-assessee under the ICDs of Rs. 55.30 Crores was in the preceding year. Rs. 50 Crores was thereafter transferred and given as ICDs to M/s Jubilant Enpro Private Limited also in the preceding year. There was a nexus between the interest paid @ 12 % per annum and the interest received @ 12.5% per annum. In fact, the respondent-assessee had earned interest of half percent. Even if the interest received was taxable under the head ‘income from other sources’, the interest paid was deductable under section 57 of the Act.

FULL TEXT OF THE HIGH COURT ORDER / JUDGMENT

This appeal by Revenue under Section 260A of the Income Tax Act, 1961 (‘Act’ for short) in the case of M/s Jubilant Energy NELP-V- Private Limited (‘respondent-assessee’, for short)relates to the Assessment Year 2011-12 and arises from the order dated 28^th June, 2018 passed by the Income Tax Appellate Tribunal (‘Tribunal’ for short).

2. Revenue relying on the assessment order and the order of the Commissioner of Income Tax (Appeals), (‘CIT (Appeals)’, for short) submits that business of the respondent-assessee was not set up and was not ready for commencement. Respondent-assessee was incorporated on 13^thMarch, 2007 for the purpose of carrying out business of exploration, development and production of oil and gas. In furtherance of this objective, the respondent-assessee had entered into a business transfer agreement with M/s Jubilant Capital Private Limited and M/s Jubilant Securities Private Limited for acquiring their 20% and 35% participatory interest in Ankleshwar Block and Golaghat Block, respectively. However, due to formalities and want of approvals, actual transfer of interest had not materialized. In the absence of business operations, interest of Rs. 1,88,98,763/- paid to a sister concern M/s Jubilant Energy (Kharsang) Private Limited was not allowable as a revenue expense and should be capitalized. Similarly, interest of Rs. 1,78,03,962/- on the Fixed Deposits Receipts (‘FDRs’, for short) in bank and Inter-Corporate Deposits (‘ICDs’, for short) with sister concerns earned by the respondent-assessee were taxable under the head ‘income from other sources‘ and not as ‘business income’. Interest of Rs. 1,78,03,962 /- cannot be deducted/set-off from interest paid at Rs. 1,88,98,763/-.

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