Law:

Section:

Section 36(1)(iii) of the Income-tax Act, 1961 (Corresponding to section 10(2)(iii) of the Indian Income-tax Act, 1922) - Interest on borrowed capital - Assessment years 1952-53 and 1953-54 - Assessee-HUF had a credit entry in name of wife of karta - After his wife's death, karta transferred certain amount, out of amount which stood credit in name of wife, to a trust account - Said trust account was credited with interest year after year - However, registered trust deed was executed later - Whether validity of trust, had to be decided with reference not to entry in account books but with reference to declaration of trust in registered deed of trust, executed by karta - Held, yes - Whether execution of a registered document and delivery of moveable property were alternative methods to constitute valid gift under terms of section 123 of Transfer of Property Act - Held, yes - Whether by execution of registered trust deed, requirements of section 123 of Transfer of Property Act were satisfied and, therefore, trust created was valid - Held, yes - Whether interests credited to trust account were permissible deductions - Held, yes FACTS 'D' was the karta of the assessee-HUF. The business books of account of the assessee-HUF carried certain amount of credit in the name of 'M', the wife of 'D'. The assessee treated that as her money which the assessee had brrowed and invested in his business. 'M' was credited every year with interest on loan. She died on 19-5-1945. On 2-11-1948, a sum of Rs. 31,000, out of what stood to her credit, was transferred by 'D' to the credit of a trust account. The trust account was credited with interest year after year. On 5-4-1951, 'D' executed a registered deed of trust. Under the trust deed, 'D' constituted himself the sole trustee for his lifetime, and he nominated five persons to succeed him to the office of trusteeship after his death. For the assessment years 1952-53 and 1953-54, the assessee claimed deduction of interest amount under section 10(2)(iii) of the 1922 Act but the same was disallowed by the ITO. The appeals the assessee filed successively to the Assistant Commissioner and the Tribunal were dismissed. The Tribunal rested…

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