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Interest paid to creditor deductible from FDs interest as it was made out of surplus arose from restructuring process

September 14, 2020[2020] 119 129 (Karnataka)

INCOME TAX : The purpose of expenditure is relevant in determining the applicability of section 57(iii) and purpose must be making and earning income Where, as per scheme of arrangement approved by High Court, assessee was utilized as special purpose vehicle for purpose of distribution of surplus after clearance of debts of a company, since process of settlement was continuing, surplus was deposited as fixed deposit in banks which earned interest, since assessee in order to cover cost of interest payable to creditors for unpaid period, invested surplus in fixed deposit and earned interest which was paid to lender or creditors, there was close nexus between interest paid to creditors on unpaid balance and interest earned on deposits, assessee was entitled to section 57(iii) deduction
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