- (1.) ON an application under Section 256(1) of the Income-tax Act, 1961, the Tribunal has referred the following questions for the opinion of this court: "1. Whether the learned Tribunal was correct in law in holding that the interest received from the Bank of India, Union Bank of India and the United Commercial Bank on fixed deposits with the said banks and interest paid to the said banks on the amounts taken against the fixed deposit receipts are to be treated distinctly and interest paid to the said banks is not to be reduced from the gross interest receipts and only the gross interest receipts are to be included in the income of the assessee-family ?
(2.) WHETHER the learned Tribunal was correct in law in sustaining taxability of gross interest receipts from each bank instead of net interest receipts from each bank ? Whether the learned Tribunal was correct in law in taxing the gross interest receipts or/and in not allowing interest payment as on expenditure/ deduction particularly when the interest income was assessed as business income and not as income from other sources ? Whether the learned Tribunal was correct in law in not accepting the claim of the assessee to tax the real income and not to tax gross receipts ?" 2. The assessee, a Hindu undivided family, had fixed deposits with three banks and enjoyed interest income. The assessee had also regular business income. The assessee needed funds for the purpose of the business and for construction of the house. Therefore, he took loans from banks against the said fixed deposits and paid interest on such loans to the banks. The assessment years involved are 1977-78 and 1978-79. He took total loan of Rs. 1,40,000, from which he used Rs. 1 lakh for construction of the house. The Income-tax Officer has disallowed the interest of the said amount to the extent of 70 per cent., which was paid against the loan used for construction of the house. The same view has been taken in the subsequent year. The Appellate Assistant Commissioner has allowed the claim of the assessee that the net interest income should be taxed. He submits that the interest received on deposits should be reduced from the interest paid on the loan. In appeal before the Tribunal, the Tribunal has restored the view taken by the Income-tax Officer. 3. Heard learned counsel for the parties, Mr. Singhi brought to our notice that the issue has been covered by the decision of the apex court in the case of CIT v. Dr. V.P. Gopinathan [2001] 248 ITR 449. Mr. Ranka submits that only the net interest income is taxable when the Assessing Officer has also taxed the interest income received ignoring the interest paid during the period on loan used for construction. 4. We have perused the assessment order and the order of the Appellate Assistant Commissioner as well as the order of the Income-tax Appellate Tribunal. Mr. Ranka is factually not correct in stating that the interest received is business income and interest paid is also against the business. The facts are that Rs. 1,40,000 was taken as loan against the fixed deposits, from which Rs. 1,00,000 was utilised for the construction of a house and Rs. 40,000 was used for the purpose of the business. Therefore, there is no question of reducing the interest income on fixed deposits by the interest paid on the loan, which was used for the construction of the house. Construction of the house is not a business asset of the assessee. In the case of CIT v. Dr. V.P. Gopinathan [2001] 248 ITR 449 (SC), their Lordships have observed as under (page 450): "It was not disputed, as it could not be, that if the assessee had taken a loan from another bank and paid interest thereon his real income would not diminish to the extent thereof. The only question then is : does it make any difference that he took the loan from the same bank in which he had placed the fixed deposit. There is no difference in the eye of the law. The interest that the assessee received from the bank was income in his hands. It could stand diminished only if there was a provision in law which permits such diminution. There is none, and, therefore, the amount paid by the assessee as interest on the loan that he took from the bank did not reduce his income by way of interest on the fixed deposit placed by him in the bank."
(3.) FOLLOWING the view taken by the apex court, we answer all these questions in the affirmative, i.e., in favour of the Revenue and against the assessee. The reference, so made, is hereby disposed of accordingly.;