Case Law Details
Smt. Anuradha Agarwal Vs ITO (ITAT Jodhpur)
In all these appeals, the common issue involved is against confirming the disallowance on interest payment claimed U/s 57 of the Act. In this regard, the brief facts of the case are that the assessee has taken the one time loan from State Bank of India – Bhilwara on account of House Loan for house construction and concerned bank have charged and levied the interest amount of Rs 695008/-, however, the assessee has claimed the said interest as deduction U/s 57 of the Income Tax Act 1961 against interest income of Rs 8629517-which was received from various parsons and parties to whom the advances were given on interest towards. It was contention of assessee that one time house loan taken and received from the bank directly been transferred from bank channel to parties in respect to earning the interest on higher rates. Being not convinced with the assessees’ contention, the Assessing Officer disallowed the interest expenditure U/s 57 of the Act.
Assessee has availed housing loan from State Bank of India. The fact that the interest was charged with respect to the loan so taken, had not been denied by the Assessing Officer. The Assessing Officer has declined claim of deduction of interest on the plea that the assessee has claimed the same U/s 57 of the Act against the interest income received by him and not under the head of income from house property. Merely because the assessee has not claimed interest expenditure against the income from house property and claimed the same against the interest income earned by him will not disentitle the assessee to claim the same against such interest income which has been earned out of advances so made.
In the instant case, it is claim of assessee that the amount so borrowed from the bank even for the purpose of house construction was utilized in advancing the same for earning interest income. The assessee is also demonstrated that he has earned substantial interest income out of such advances. Before allowing the interest expenditure against the interest income, the burden is on the assessee to prove that the amount so borrowed has been actually and directly used for the purpose of advancing loan on which interest income has been earned. One to one link is required to be established in respect of utilization of interest bearing funds so borrowed. Merely because the loan was sanctioned for housing purpose, it cannot be said that the assessee cannot use it for advancing loans to others for earning interest. It may amount to violation of terms and conditions of the agreement so entered with the bank while sanctioning of the loan, but there is no contravention under the Income Tax Act for advancing such funds for earning interest income. However, there is no finding by the lower authorities that the interest earned out of advances were not out of interest bearing funds taken from bank. In the interest of justice and fair play, I restore this issue back to the file of the Assessing Officer for deciding afresh and the assessee is directed to demonstrate one to one use of borrowed funds for advancing loan on interest. I direct the Assessing Officer accordingly.
I also observe that in case of failure on the part of assessee to establish one to one relation between the amount of loan availed from bank and advance given by the assessee out of such borrowed funds for earning interest, the interest so paid is to be allowed against the income under the head ‘income from other sources’ as per provisions of section 24 of the Act.
Please become a Premium member. If you are already a Premium member, login here to access the full content.
