ORDER The instant ITA No. 414/1998, as also ITA No. 415/1998 and ITA No. 416/1998, are being disposed of together, as all these references involve the same question of law for the determination.
2. The respondent/assessee for the purposes of establishing and running a cement manufacturing plant applied and obtained loan from various financial institutions. After availing the loans, same were deposited by the assessee in some bank account, on which, certain amount has accrued to the assessee as interest. Initially, the income tax department, did not treat such interest to be income of he assessee u/s 30 of the Income Tax Ordinance, 1979, but subsequently, the provisions of Section 66-A were invoked by IAC, on the ground that the amount of interest should the income of the assessee under the section ibdi and chargeable to tax. This order was challenged by the assessee before the Tribunal and the Tribunal has come to the following conclusion:- "The principle settled in 1-992-PTD-Trib-l 142 another case relied upon by the Revenue also supports the contention that where an expense is directly relatable to the income earned, is an admissible expense, in Behar Alloys Steel Limited (supra), their lordship of the Patna High Court, found for the proposition that if the amount earning interest had been borrowed the interest payable would be an allowable deduction, in the next case relied upon by the Revenue CIT vs. United Wire Ropes (Supra) as well the Bombay High Court decided against the assessee as the transaction of borrowing money and its deposit in bank was not considered as a single composite transaction. The proportionate interest paid on the amount deposited in the case before us was earned was not borrowed or that interest in terms of claim was not paid to the lender. Therefore, the assessee is held entitled to the claimed expense u/s 31 (1 )(b) of the Ordinance."
2. The question posed in these reference is, "whether the assessee is entitled to claim the expenses i.e. The interest paid to the financial institutions for the loan, u/s 31(1 )(b)."
3. For the purpose of answering the above, the provisions of section 31 (1 )(b) are reproduced as under:- . "any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of earning such income."
From reading of the above provision, it is clear that the assessee is entitled to the deduction of any amount, which he expended for the purpose of earning such income, which is chargeable under the Ordinance. Obviously, the assessee for earning the interest upon its deposits, also had to pay the interest upon the loans procured by it, therefore, this directly is an expenditure, which is expended for earning the interest and was deductible form the income of the assessee under the relevant head.
In the light of above, the answer to the question stands accordingly answered.