Law:

Section:

clauses (iii) and (xv) of sub-section (2) of section 10 of the indian income-tax act, 1922 [corresponding to sections 36(1)(iii) and 37(1) of the income-tax act, 1961]-interest on money borrowed-assessee promised to pay rs. 10 lakhs for setting up an engineering college in memory of her husband-initially assessee debited her capital account and credited college account with the said amount and later borrowed rs. 5.5 lakhs from bank and deposited the same for college in a joint account opened in her name and in the name of district magistrate-balance sum of rs. 4.5 lakhs left with her was treated as a debt due to the college and, interest accrued thereon was credited in college account-interest whether deductible-held, no-assessee also paid interest on amount borrowed from bank and claimed that amount was borrowed in order to preserve business assets-interest on money borrowed whether deductible-held, no Facts The assessee, who carried on money-lending and other business promised to donate a sum of Rs. 10 lakhs for the setting up of an Engineering College in the memory of her husband. In pursuance of the promise, initially on 21-11-1955, a sum of Rs. 10 lakhs was debited to her capital account and corresponding credit was given to the account of the said college. Thereafter, on 7-1-1956, the assessee borrowed a sum of Rs. 5.5 lakhs from her bank and deposited the same for college in a joint account opened in her name and in the name of the District Magistrate. The balance amount of Rs. 4.5 lakhs left with her, was treated as a debt due to the college and interest thereon at the rate of 6 per cent was credited in the account of the college. For the assessment years 1957-58, 1958-59 and 1959-60, the assessee paid interest to the bank and claimed the same as a deduction. The assessee contended before the ITO that she preferred to take loan from the bank in order to save her income-earning assets, namely, the shares, which she would have otherwise been required to dispose of. For the assessment years 1958-59 and 1959-60, the assessee also claimed that the interest on the remaining balance of Rs. 4.5lakhs credited to the college account be allowed as a deduction.…

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