Business interest deduction and reassessment: genuine borrowed capital and fresh information were both required, not mere change of opinion.

Interest on capital genuinely borrowed for business purposes was deductible even where the loan was used to acquire a co-sharer's interest in the family business on partition, because the provision did not require the borrowing to be limited to revenue assets or to be necessary despite the assessee's own funds. Reassessment under section 34(1)(b) was permissible only on fresh information leading to a belief that income had escaped assessment; a mere reconsideration of the same material or change of opinion was insufficient. On the stated facts, both the deduction and the challenge to reopening were resolved in favour of the assessee.

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Issues: (i) Whether interest paid on a loan borrowed to acquire a co-sharer's interest in the family business on partition was allowable as a deduction under section 10(2)(iii) of the Indian Income-tax Act, 1922. (ii) Whether reopening of the assessments for the years 1953-54 and 1954-55 under section 34(1)(b) of the Indian Income-tax Act, 1922 was justified.

Issue (i): Whether interest paid on a loan borrowed to acquire a co-sharer's interest in the family business on partition was allowable as a deduction under section 10(2)(iii) of the Indian Income-tax Act, 1922.

Analysis: The provision allows deduction of interest where capital is borrowed for the purposes of the business. The clause does not distinguish between borrowing used to acquire a revenue asset and borrowing used to acquire a capital asset, nor does it require that the borrowing be necessary despite the assessee having other funds. Once the borrowing is genuine, is for business purposes, and interest is actually paid, the deduction follows. The payment was held not to be capital expenditure.

Conclusion: The interest was allowable as a deduction under section 10(2)(iii), and the issue was decided in favour of the assessee.

Issue (ii): Whether reopening of the assessments for the years 1953-54 and 1954-55 under section 34(1)(b) of the Indian Income-tax Act, 1922 was justified.

Analysis: Reopening under section 34(1)(b) requires fresh information coming into the Income-tax Officer's possession after the original assessment and a resulting belief that income had escaped assessment. Mere reconsideration of the same material or a change of opinion is not enough. On the record, no such new information was shown, and the reopening was founded only on a different view of the already known facts.

Conclusion: The reopening was not justified, and the issue was decided in favour of the assessee.

Final Conclusion: The reference was answered entirely in favour of the assessee, with both questions disposed of against the revenue.

Ratio Decidendi: Interest on capital genuinely borrowed for business purposes is deductible under section 10(2)(iii) even if the borrowed funds are used to acquire a capital asset, and reassessment under section 34(1)(b) cannot be founded on a mere change of opinion without fresh information.

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