Decided on March 10,2003

C John Rajan Respondents


G.SIVARAJAN, J. - (1.) THE following question of law is referred to this court as per the directions issued in the judgment dated 27 -3 -1998 in O.P. No. 16499/1997 : 'Whether, on the facts and in the circumstances of the case, the assessee is entitled to set off the interest payable on the loans against the interest on the fixed deposits ?'
(2.) THE brief facts necessary for the decision on the above question of law is as follows : The respondent -assessee is a doctor. For the assessment year 1990 -91, the assessee declared interest on bank deposits of Rs. 44,915 and claimed deduction of interest payable to bank on loans taken on the security of the fixed deposits amounting to Rs. 45,297. The assessing officer while completing the assessment under section 143(1)(a) of the Income Tax Act, 1961, did not allow the interest paid to the bank, and also rejected the application filed by the assessee under section 154 of the Act. However, in appeal by the assessee, the Deputy Commissioner (Appeals) held that only the net interest on the fixed deposits was assessable in the hands of the assessee. Accordingly, he directed the assessing officer to set -off the interest payable on the loans against the interest on the fixed deposits. In appeal by the department, the Tribunal confirmed the order of the Deputy Commissioner (Appeals) relying on the decision of the Andhra Pradesh High Court in the case of CIT v. Andhra Farm Chemicals Corpn. : [1988]171ITR660(AP) . We have heard the learned Central Government standing counsel appearing for the applicant. Though notice was served on the respondent, there is no appearance. The standing counsel submitted that the question referred is covered by the decision of the Supreme Court in CIT v. Dr. V.P. Gopinathan : [2001]248ITR449(SC) . We have perused the said judgment. The questions involved in the case before the Supreme Court was as to whether the assessee is to be assessed on the gross amount of interest received by him on his Fixed Deposits or on the interest received as reduced by the amount of interest paid on the loan amount taken on the security of the said deposits. The Supreme Court held that the interest that the assessee received from the bank on fixed deposit was income in his hands and it could stand diminished only if there was a provision in law permitting such diminution. There is none, and therefore, the amount paid by the assessee as interest on the loan he took from the bank did not reduce his income by way of 'interest on the fixed deposits placed by him in the bank'. In view of the authoritative pronouncement of the Supreme Court, the question referred to has to be answered in negative, that is, in favour of the revenue and against the assessee. We answer accordingly.;

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