Interest on loans- Income from other sources

[subodh]

my question is about the income from interest on deposits with banks. perhaps i should proceed with the example straightway.
A salaried person has earned interest amounting to Rs.2,000/- in his bank accounts, and the interest accrued in his car loan account is Rs. 8,000/-. What is his income from interest: Rs.2,000/- or Nil (as loss can't be set off from salary).
I feel its nil, but the AO is adamant that interest paid on car loan is immetarial, and there is income of Rs.2,000/-.
Friends, please suggest.

[camanojgupta]

the AO is correct . In case of a salary person intt on car loan is personal exp.
CA MANOJ GUPTA
JODHPUR
09828510543

[subodh]

thanks manoj.
but perhaps we can argue on the point.
Yes- Interest on car loan is personal expense. BUT the interest in SB a/s is also personal income (not a salary or business income).
what is my income from ineterst under the head of Other Sources. its credits - debits. and if debits are greater, the net is zero (not negative).
i dont want to adjust car loan interest from Salary or Business Income - but within the head of other sources.

[camanojgupta]

Dear Mr Subodh
Intt on SB A/c has always been taxed as income from other sources(IFOS). And its income by any standards or logic. If its income then its computation can be made within four corners of law. As per section 57 only specified exp can be allowed against IFOS. The exp shall be in the nature that it has been incurred for the purpose of making or earning the income. Car loan intt is not an exp incurred to earn SB A/c intt. Both operate in different field.

[subodh]

Dear CA Mr Manoj,
I would be thankful if you could cite any circular, ruling about this.
My view was that my interet income is credits minus debits and its NOT that i want to claim deduction of car loan interest. When you have to see my income from iinterest, its the credit balance of intrest a/c. Sec 57 doesnot explain either.

[subodh]

Requesting experts to throw light on the issue and cite circulars/case laws/etc.

[ashutosh majumdar]

Dear CA Mr Manoj,
I would be thankful if you could cite any circular, ruling about this.
My view was that my interet income is credits minus debits and its NOT that i want to claim deduction of car loan interest. When you have to see my income from iinterest, its the credit balance of intrest a/c. Sec 57 doesnot explain either.

Well, the law that "my interet income is credits minus debits" can be argued only if there is a nexus between the credits and the debits; and even that is applicable only in restricted circumstances such as if it is pre-construction stage (Bokaro Steel) or in the context of s. 80HHC (following Lalsons).

As there is no nexus in your case, one will have to go by s. 57(iii) which allows a deduction of only that expenditure which is incurred "to earn the income". Obviously, the interest on the car loan is not incurred to earn the SB interest and so no set-off can be claimed.

If you want to read up more on the subject, I would recommend Chaturvedi & Pithisaria's commentary on s. 56 & 57.

[sai prasad]

the principle of netting is not applicable to the instant case

[kkmalhotra08@gmail.com]

Intt on car loan is not at all incurred to earn the saving bank interest. becaz as per section 57 only that expenditures are allowed which is incurred to earn the corresponding income. therefore in your case, netting off is not allowed
Please dont confuse on the matter as the same is very cristal clear.

[CA kishore Maniyar]

Any expense cannot get set off from Income from Other Source ..as Sec 57 (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.


is clear .
         

[nitinbhalla]

Section 57 talk about the deduction from the income from the other source.
Section 57(iii) specify that

"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."

interest on car loan is not an expense for earning the int. income from the saving account. also for the salary class of person the intt. on the personal car can not be expenditure for the purpose of the computation of the income. He can not get the benefit of the intt. paid on the car loan.

[vsaiyar]

In computing income from "Other Sources" what is allowed as deduction is the expenses incurred for earning that income.  The interest paid on car loan cannot be said to be expenditure incurred for earning the interest income from the FDs.  In my view the AO is right