Law:

Section:

Section 56 read with section 57 of the Income-tax Act, 1961 (Corresponding to section 12(1) and (2) of the Indian Income-tax Act, 1922) - Income from other sources - Chargeable as - Assessment year 1959-60 - Assessee was a partner in 'K' firm - He withdrew certain sum from his account in said firm and deposited same in K Ltd. in name of his minor son - During relevant previous year, assessee paid interest of certain sum to 'K' firm and also earned an interest of certain sum on amount deposited in K Ltd. - Assessee while showing amount of interest received from K Ltd. assessable under section 16(3), claimed that interest which he had paid to K firm should be allowed to him as a deduction because it was interest charged on his account by firm - ITO disallowed claim of deduction holding that it was not an admissible deduction since it was not referable to any source of income of assessee much less to his share of income from firm - Whether since assessee deposited amount with K Ltd. solely for purpose of earning an income from such deposit, interest amount on deposit with K Ltd. was income of assessee for purpose of section 12 - Held, yes - Whether therefore, conditions for grant of allowance contemplated in section 12(2) was fulfilled and assessee would be entitled to set off interest paid to K firm against interest earned from K Ltd. - Held, yes FACTS The assessee was a partner of the firm K. He had a personal account with the firm, K, in which his income from the firm used to be credited and his withdrawals for personal and other expenses used to be debited. On 16-12-1955, he withdrew from this account a sum of Rs. 3,75,000 and deposited it with a company, K Ltd., on the same day in the name of his minor son, to whom he admittedly gifted the amount. In the relevant year of account he paid interest of Rs. 26,197 to the firm K. As against that, from the amount of Rs. 3,75,000, which he had deposited with K Ltd., he earned an interest of Rs. 25,375. For the assessment year 1959-60, the assessee showed in his return this amount of interest as an amount on which he was liable to be assessed under section 16(3) along with his other income computed at Rs. 1,71,094,…

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