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Judgment
Rajasekhara Murthy, J.—The following question has been referred by the Income Tax Appellate Tribunal, Bangalore Bench, under s. 256(1) of the I.T. Act, for the opinion of this court :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the interest deducted by the bank on fixed deposits surrendered prematurely could not be allowed as deduction against interest on fixed deposits earned during the year ?"
In the assessment of the assessee for the assessment year 1975-76, the ITO brought to tax a sum of Rs. 10,101 being the income from interest on fixed deposits in bank under "other sources". During the year, the assessee had terminated the fixed deposits prematurely. Thereupon the bank recalculated the interest because of the premature termination. As a result of such recalculation, the assessee was asked to pay back Rs. 47,683 being the amount of interest which was paid in excess by the bank for all the years up to the date of termination.
The assessee claimed this amount was a deduction in her assessment. The ITO rejected the claim on the ground that the repayment made by her could not be treated as an expense incurred for the purpose of earning the interest on fixed deposits.
The assessee failed in her appeal before the AAC and in further appeal before the Tribunal.
Being aggrieved by the order of the Tribunal, the assessee had sought this reference on the question referred to above.
As could be seen from the order of assessment, under the hear "Other sources", a sum of Rs. 10,101 was assessed as interest earned on the fixed deposits during the year. That was the interest that accrued to the assessee on her fixed deposits in the bank till the date of termination. The deduction of the excess interest by the bank was effected on account of the premature termination of the fixed deposits. This, in our opinion, had absolutely no connection with the interest earned by the assessee up the date of termination.
The Termination was, therefore, justified in disallowing the claim for deduction of Rs. 47,683 in the assessment of the assessee for the year 1975-76.
In the result, we answer the question in the affirmative and against the assessee.