Deduction for expenditure against interest income requires a factual nexus with earning the income; absence of nexus defeats reference

Interest income from fixed deposits could not be reduced by expenses that were not shown to have been incurred for earning that income, because deduction under section 57(iii) requires a factual nexus between the expenditure and the income-producing activity. The Tribunal's finding that the claimed expenses lacked that nexus was a finding of fact based on appreciation of the record, so no referable question of law survived for reference. The request for reference was therefore rejected, and the tax case petition failed.

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Issues: Whether the expenditure of Rs. 17,769 claimed against interest income was allowable as a deduction under section 57(iii) of the Income-tax Act, 1961, and whether any referable question of law arose from the Tribunal's conclusion.

Analysis: The assessee's only income was interest from fixed deposits. The Tribunal found, on appreciation of facts, that the items of expenditure were not incurred for earning that interest income. Deductibility under section 57(iii) depends on a factual nexus between the expenditure and the earning of income, and the Tribunal applied the governing Supreme Court principle to hold that the claimed expenses did not satisfy that requirement. As the finding was one of fact, no referable question of law survived for reference under section 256(2).

Conclusion: The expenditure was not allowable as a deduction under section 57(iii), and the request for reference was rightly rejected.

Final Conclusion: The tax case petition failed because the Tribunal's factual finding that the expenditure was not incurred for earning the interest income left no referable question of law.

Ratio Decidendi: Expenditure is deductible under section 57(iii) only if it is incurred for earning the relevant income, and a finding that such nexus is absent is ordinarily a finding of fact that does not give rise to a referable question of law.

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