Law: Income Tax Act, 1961

Section: 36(1)(iii)

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 year 1957-58 - Assessee, who was carrying on business as bus operator, borrowed funds and utilised it for purchase of shares of another transport company - Whether it could not be said that purchase of shares by assessee was necessary or even incidental step to be taken in any stage of business towards its furtherance or development - Held, yes - Whether, therefore, interest paid on such borrowed capital was not an allowable deduction under section 10(2)(iii) of 1922 Act - Held, yes Section 57, read with section 56, of the Income-tax Act, 1961 [Corresponding to section 12(2), read with section 12(1), of the Indian Income-tax Act, 1922] - Income from other sources - Deductions - Assessment year 1957-58 - Whether it is not necessary that there should be income assessable to tax under miscellaneous head "section 12(1)" before upholding claim for expenses under section 12(2) of 1922 Act - Held, yes - Whether in view of facts stated under head "Interest on borrowed capital", amount of interest paid by assessee was deductible under section 12(2) of 1922 Act - Held, yes FACTS The assessee was carrying on the business as a bus operator. During relevant account year he acquired certain shares of a transport company. He had borrowed certain amount from various persons and utilised part of it for the purchase of aforesaid shares. For the assessment year 1957-58, he claimed deduction, in the computation of his business income, representing interest paid by him on the total borrowing. The ITO disallowed the assessee's claim on the ground that the amount borrowed for purchase of shares was not for the purpose of the transport business. On appeal, the AAC deleted the disallowance. On appeal by the revenue, the Tribunal held that the shares in the transport company did not constitute an asset of the transport business of the assessee, that the amount expended for the purchase of the shares was not capital borrowed by the assessee for the business and that, therefore, no deduction under section 10(2)(iii) of the 1922…

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