Interest deduction requires proof, not presumption, where tax deduction at source disallowance may apply.

The Madras HC considered whether interest deduction could be allowed without proof that tax deduction at source was not required. It noted that the assessee had not produced material showing the true nature of the payment, the identity of the payee, or the link between the alleged interest and the purchase transaction. Relief cannot rest on presumption; the claimant must establish entitlement with cogent evidence, especially where statutory disallowance for failure to deduct tax at source may apply. The issue was answered against the assessee and in favour of the Revenue.

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Issues: Whether the Tribunal was right in holding that the deduction of tax at source did not arise on the facts of the case and allowing deduction of the interest payment.

Analysis: The assessee failed to produce material showing the true nature of the payment, the identity of the payee, or the linkage between the claimed interest and the purchase transaction. The Tribunal's conclusion rested on presumption rather than proved facts. In tax matters, the claimant for deduction must establish entitlement by proper material, and relief cannot be granted on assumption. The provisions governing disallowance of interest without tax deduction at source, together with the deeming rule as to interest payable by a resident, required proof that the payment fell outside the statutory bar, which was not furnished.

Conclusion: The question was answered against the assessee and in favour of the Revenue.

Ratio Decidendi: A deduction under the income-tax law cannot be allowed on mere presumption; the assessee must prove by cogent material that the payment is outside the statutory disallowance for failure to deduct tax at source.

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