JUDGMENT
B.P. Jeevan Reddy, J.
1. The question referred under section 256(1) of the Income-tax Act, at the instance of the Revenue, is the following :
“Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in deleting the amount of Rs. 13,464 as an allowable expenditure for the assessment year 1975-76 ?”
2. The assessee is a subsidiary company of Andhra Sugars Ltd. The assessee-company was set up for the purpose of manufacturing chemicals. Certain money was lying with it during its formative period. With a view not to keep the said money idle, it deposited the same with the holding company, i.e., Andhra Sugars Ltd. These deposits were to mature only on December 31, 1974. Meanwhile, the assessee required some money and it borrowed a sum of Rs. 2 lakhs from Andhra Sugars Ltd. The interest paid on this amount of Rs. 2 lakhs was set off against the interest earned on the deposits made by the assessee with Andhra Sugars Ltd. and only an amount of Rs. 21,401 was returned by the assessee. To be more precise, the interest earned on the deposits made by the assessee-company was Rs. 34,865 and the interest paid by the it on the loan taken from Andhra Sugars was Rs. 13,464, the difference being Rs. 21,401. The return filed by the assessee was accepted by the Income-tax officer. However, the Commissioner of Income-tax felt that the Income-tax Officer had committed an error in deducting the sum of Rs. 13,464. Accordingly, he revised the order of the Income-tax Officer under section 263 of the Act. He held that the sum of Rs. 13,464 is not an allowable expenditure. The assessee filed an appeal before the Appellate Tribunal. The Appellate Tribunal held that though for the purpose of accounting, there appeared to be two independent transactions – one by way of deposit by the assessee and another by way of taken by the assessee – in truth and in reality there was only one transaction. The Tribunal held that it was not a case of deduction nor was it a case of allowing an expenditure incurred, but that the question was what was the real and true interest income derived by the assessee ? It accordingly allowed the appeal. Thereupon, the Revenue asked for and obtained this reference.
3. At the outset, we must say that the question framed is rather inconsistent with the finding of the Tribunal. The Tribunal has not found that the sum of Rs. 13,464 is an allowable expenditure. Its finding is that they are not two independent transactions, but only one transaction and that, in truth and in fact, the interest income earned by the assessee is Rs. 21,401 and not Rs. 34,865. Accordingly, we must reframe the question in the following terms :
“Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that though for the purpose of accountancy, there appeared to be two independent transactions in truth and in reality there was only one transaction ?”
4. Learned standing counsel for the Revenue contended that in as much as the assessee had not commenced business, nor has it carried on any business during the accounting year relevant to the assessment year concerned herein, the amount of Rs. 13,464 cannot be deducted under section 37. The income of Rs. 34,865 is taxable under the head “Other sources” under section 56 of the Act. If so, the deduction of Rs. 13,464 can be claimed under and is referable to clause (iii) of section 57. But, clause (iii) of section 57 is wholly inapplicable and does not warrant the said deduction. Section 57(iii) reads as follows :
“57. The income chargeable under the head ‘Income from other sources’ shall be computed after making the following deductions, namely :- …
(iii) any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income….”
5. We must say that so far as the contention of learned standing counsel based on section 57(iii) is concerned, he is right. But, in our opinion, section 57(iii) has no application to the facts of the present case, in view of the finding recorded by the Tribunal. It is not as if the Tribunal has found that the interest income is Rs. 34,865 and that the amount of Rs. 13,464 should be allowed as expenditure under section 57(iii). Had the Tribunal held so, its finding would have been open to serious doubt. What it has really found is that, though for the purpose of accountancy, they appear to be two independent transactions, viz., one of deposit by the assessee with Andhra Sugars Ltd., and the other a transaction of borrowing of money by the assessee from Andhra Sugar Ltd., they are in truth and in reality only a single transaction, and hence the income received by the assessee is only Rs. 21,401, and nothing more. Having regard to the facts and circumstances of this case, we are not inclined to hold that the said finding is not justified or warranted. Once that finding is accepted as correct, there is no scope for applying section 57(iii).
6. The Tribunal has also referred to the real income theory which again we do not think it is necessary to go into or pronounce upon.
7. It is, therefore, unnecessary for us to deal with the several decisions cited by learned standing counsel rendered with reference to section 57(iii). Once we accept the finding of fact recorded by the Tribunal as correct, and when practically no question of law arises as stated above, we see no reasons to disturb the said finding of fact.
8. Accordingly, the question which has been reframed by us above, is answered in the affirmative, i.e., in favour of the assessee and against the Revenue. No costs.