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Section 36(1)(iii) of the Income-tax Act, 1961 - Interest on borrowed capital - Assessment year 1989-90 - Assessee claimed deduction of interest paid on loan obtained for purchase of shares - Admittedly, there was no full acquisition of shares during relevant assessment year - Whether on facts, Assessing Officer had rightly disallowed part of interest claimed by assessee on pro rata basis - Held, yes FACTS The assessee was a private family trust, inter alia, carrying on film business. One of the clause of the trust deed of the assessee provided for acquisition of stocks, shares, debentures, annuities and securities, etc. In its return of income for the relevant assessment year, the assessee claimed deduction of interest paid on the loan amount borrowed form the bank for the purchase of shares. As per the assessee, the entire loan amount was transferred to a shareholder, GHPL which, in turn, advanced it to 'G' group of companies for the purchase of shares of a company. As on 31-3-1980, 'G' group had transferred shares to GHPL for part of amount given to it and retained the balance amount with it. Accordingly, the Assessing Officer disallowed a part of the interest claimed on pro rata basis. On appeal, the Commissioner (Appeals) upheld the impugned disallowance. On second appeal, the Tribunal held that the assessee was entitled to claim deduction of interest paid out of the income derived. On revenue's appeal : HELD From the proviso to section 36(1)(iii ), it is clear that the interest paid in respect of the amount borrowed for acquisition of an asset shall not be allowed as deduction till such asset is first put to use. In the instant case, the loan borrowed by the assessee was for the purpose of acquisition of shares. Since there was no full acquisition of shares, the Assessing Officer had rightly disallowed the claim on pro rata basis and the Commissioner (Appeals) had rightly confirmed the same. The Tribunal had committed an error in not applying its mind to the said aspects of the matter. [Para 5] The loan borrowed by the assessee was for the purpose of acquisition of shares. That was not materialised. Unless asset was acquired and put to use, deduction for…

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