May 2008
Income from other sources : S. 56, 57 : Interest on borrowed money prior to commencement of business — Deductible u/s 57
By K. B. Bhujle, Advocate
Reading Time 2 mins
New Page 4
18 Income from other sources : S. 56 and S. 57 of Income-tax
Act, 1961 : A.Ys. 1997-98 and 1998-99 : Interest income prior to commencement of
business : Interest on borrowed money could be allowed as deduction.
[CIT v. VGR Foundations, 298 ITR 132 (Mad.)]
The assessee was engaged in the real estate business. It
incurred expenses prior to commencement of business and also earned interest
income from out of the fixed deposits with the bank and the said income had been
set off against the expenses. The Assessing Officer assessed the interest income
as income from other sources, but did not allow any deduction of expenses. The
Tribunal held that the interest on moneys borrowed for the period prior to the
commencement of business could be allowed as deduction from the interest u/s.57
of the Income-tax Act, 1961.
On appeal by the Revenue, Madras High Court upheld the
decision of the Tribunal and held as under :
“(i) The Tribunal allowed the claim of the assessee by
following its own earlier order and had rightly come to the conclusion that
interest on moneys borrowed for the period prior to the commencement of
business could be allowed as deduction u/s.57 while computing income from
other sources in respect of the interest received.
(ii) The Revenue was unable to give any further materials
or evidence and to furnish information as to whether they had filed any appeal
against the earlier order or not. Therefore there was no error or legal
infirmity in the order of the Tribunal so as to warrant interference. “
