ORDER

The High Court of Kerala was called upon to consider at the behest of Revenue the following two questions:

"1. Whether, on the facts and in the circumstances of the case, the assessee is to be assessed on the gross amount of interest received by him on his fixed deposit or on the interest received as reduced by the amount of interest paid on the loan taken on the security of such deposit?

2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact in holding :

(i) the act of making deposit and the act of borrowing on such deposit cannot be viewed as representing two different transactions;

(ii) there is thus a nexus between the deposit and borrowing;

(iii) the principle of mutual dealings could be inferred."

It answered the questions in favour of the assessee. The Revenue is in appeal by special leave.

2. To take the facts of one of the two appeals before us as illustrative, the assessee had put moneys into fixed deposit with a bank and had earned in the assessment year in question interest in the sum of Rs. 1,17,444 thereon. On the security of the amount so deposited, t