Case Law Details
Smt. Zeelia Zeena Mayzean Shenoy Vs ITO (ITAT Bangalore)
The issue under consideration is 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?
In the present case, the assessee made fixed deposit with various banks amounting to Rs.15 crore. At the same time, the assessee availed loan amounting to Rs.2.5 crore from State Bank of India and claimed the interest of Rs.25,16,005 to be set off against the interest received from various banks from fixed deposits. The same was denied. The contention of the learned AR is that there is a direct nexus between the interest receipt from banks and interest payments to banks.
When the assessee after borrowing amount for the purpose of business, had kept part of it in short deposit in bank, and the interest paid on amount borrowed was not deductible from interest earned from short term deposits, as borrowing was not for the purpose of earning such interest income.
In case of CIT v. V.P.Gopinathan, High court has held that where interest is received by the assessee on its fixed deposit and has also paid interest on loan obtained on the security of the fixed deposit, only the net interest is chargeable on the principle of mutuality. Further, this same decision was reversed by the Hon’ble Supreme court stating that interest on loan taken by the assessee from the bank on secured fixed deposit could not be reduced from his income by way of interest on the fixed deposit placed by him in the bank.
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