By TIOL News service

NEW DELHI, NOV 16, 2017: THE ISSUE BEFORE THE TRIBUNAL IS - Whether incidental action of investment in property for earning assured return, will not stop investor from claiming interest expenditure incurred for such purpose, u/s 57(iii). YES is the answer.

Facts of the case:

The Assessee, an individual, during the subject A.Y, jointly along with his brother, Mr. Ranjan Dagar, had entered into an agreement for purchase of commercial complex proposed to be situated in Greater Noida, UP. The assessee had obtained loan of Rs.6,00,00,000/- from Reliance Capital Ltd. and had paid it to Omaxe Ltd as advance for the said project. In return, the assessee along with his brother Mr. Ranjan Dagar earned interest income of rs.72,51,912/- from Omaxe Ltd on the advance given to Omaxe Ltd and duly offered his 50% share of interest income of Rs.36,25,956/- for taxation u/s 56. Further, since the loan was taken from Reliance Capital Ltd. to give the advance to Omaxe Ltd, the assessee had claimed deduction of interest payment of Rs.40,80,835/- u/s 57(iii) against the interest income of Rs.36,25,956/- earned from Omaxe Ltd. The AO however, by relying on the judgment of Apex Court in case of Tuticorin Alkali Chemicals & Fertilizers Ltd. Vs. CIT, 2002-TIOL-489-SC-IT-LB held that the deduction claimed by assessee for setting of his interest income earned against the Reliance Capital could not be accepted. Therefore, the same was disallowed and added back to the income of assessee at Rs.40,80,835/-. On appeal, the CIT(A) deleted the addition.

ITAT held that,

++ it is seen that the ITAT in case of ITO Vs. Shri Ranjan Dagar ITA No. 3346 & 4602/Del/2013 for A.Ys 2009-10 & 2010-11, has observed that: "....CIT(A) has rightly held that this income is to be treated as income from other sources and the interest paid by assessee to M/s. Reliance Capital Limited is to be allowed as expenditure incurred for earning the income u/s 57(iii). Moreover, when there was a categoric understanding between the assessee and M/s. Reliance Capital Limited that the assessee will get assured return, the interest was being paid for the purpose of earning interest i.e. assured income from M/s. Omaxe Limited and acquisition of the property was incidental only....";

++ the facts are identical which were not distinguished by the DR. So respectively, following the said order, we are of the view that the CIT(A) has rightly held that this is not house property income as contemplated by the AO and there is investment in land in the commercial property on which the assessee is getting assured return/interest for his investment of Rs. 6 crores with Omaxe Ltd. Hence, this income has to be treated as income from other sources and the interest paid by him to Reliance Capital should be allowed as expenditure incurred for earning income u/s 57(3).

(See 2017-TIOL-1592-ITAT-DEL)