| Case ID |
ffbc61cd-d400-4170-adc6-7c40bf3b337f |
| Body |
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| Case Number |
IT REFERENCE CASE NO. 170 OF 1981 |
| Decision Date |
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| Hearing Date |
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| Decision |
The Karnataka High Court ruled in favor of the assessee, Master Subraya M. Pai, allowing the deduction of Rs. 3,450 under Section 57(iii) of the Income-tax Act, 1961. The court found that the interest foregone by the assessee due to the premature withdrawal of a fixed deposit was directly linked to the earning of dividend income from shares purchased with the withdrawn funds. The court held that the interest paid to the bank constituted an expenditure laid out wholly and exclusively for the purpose of earning the dividend income, thus entitling the assessee to the relief claimed. |
| Summary |
In the case of Commissioner of Income Tax v. Master Subraya M. Pai, the Karnataka High Court addressed the issue of whether the interest foregone by an assessee due to the premature withdrawal of a fixed deposit could be claimed as a deduction under Section 57(iii) of the Income-tax Act, 1961. The assessee had withdrawn a fixed deposit before maturity to invest in shares, thereby foregoing interest of Rs. 3,450. The Income Tax Officer (ITO) initially denied the deduction, but the Appellate Assistant Commissioner (AAC) allowed it, reasoning that the expenditure was incurred with the object of earning income. The Tribunal upheld the AAC's decision, noting a direct nexus between the withdrawal of the fixed deposit and the earning of dividend income. The High Court affirmed this view, ruling that the interest foregone was an allowable deduction as it was an expenditure laid out wholly and exclusively for earning income from other sources. The case highlights the importance of establishing a direct connection between an expenditure and the income it is intended to generate, especially in the context of tax deductions under the Income-tax Act, 1961. |
| Court |
Karnataka High Court
|
| Entities Involved |
Corporation Bank
|
| Judges |
K. Jagannatha Shetty,
S.A. Hakeem
|
| Lawyers |
H. Raghavendra Rao,
S.P. Bhat
|
| Petitioners |
Commissioner of Income Tax
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| Respondents |
Master Subraya M. Pai
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| Citations |
1984 SLD 856,
(1984) 150 ITR 251
|
| Other Citations |
CIT v. Sri Ananth G. Pai [IT Reference Case No. 171 (Kar.) of 1981]
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| Laws Involved |
Income-tax Act, 1961
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| Sections |
57(iii)
|