Deferred purchase instalment interest was not deductible as borrowed capital, business expenditure, or property income charge relief.

Interest on unpaid instalments under a building agreement for acquisition of leasehold rights was not treated as interest on capital borrowed for business, because the deferred price did not create a loan or borrowed capital. The same interest was also not deductible as expenditure wholly and exclusively laid out for the business, since it related to acquisition of the premises rather than carrying on the cinema business. It further did not qualify under the property income provision, as no subsisting capital charge existed on the leasehold property under the relevant statutes. The claims were therefore rejected against the assessee.

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Issues: (i) Whether interest paid on unpaid instalments under the building agreement was deductible as interest on capital borrowed for the purposes of business under section 10(2)(iii). (ii) Whether the same interest was allowable as expenditure wholly and exclusively laid out for the purposes of business under section 10(2)(xii). (iii) Whether the interest attributable to the property income was deductible under section 9(1)(iv) on the footing that the property was subject to a capital charge, or that the interest was payable on capital by the use of which the property was acquired.

Issue (i): Whether interest paid on unpaid instalments under the building agreement was deductible as interest on capital borrowed for the purposes of business under section 10(2)(iii).

Analysis: The agreement was one for purchase of a leasehold interest on deferred instalments, with interest charged on the outstanding balance. The arrangement did not amount to a loan transaction. The money due under the agreement was the purchase price of the leasehold rights, and the facility of payment by instalments did not convert the unpaid price into borrowed capital for business purposes.

Conclusion: The claim under section 10(2)(iii) failed and was against the assessee.

Issue (ii): Whether the same interest was allowable as expenditure wholly and exclusively laid out for the purposes of business under section 10(2)(xii).

Analysis: The payment of interest on the unpaid premium was connected with acquisition of the leasehold premises, but it was not expenditure incurred wholly and exclusively for carrying on the cinema business. The business could be carried on independently of acquiring the lease, and failure to pay the interest would affect acquisition of the property rather than the conduct of the business itself.

Conclusion: The claim under section 10(2)(xii) failed and was against the assessee.

Issue (iii): Whether the interest attributable to the property income was deductible under section 9(1)(iv) on the footing that the property was subject to a capital charge, or that the interest was payable on capital by the use of which the property was acquired.

Analysis: No permanent charge arose under the Bombay City Land Revenue Act because the statutory remedies and charge could arise only on default followed by the prescribed notice, and no such default had occurred. No charge arose under the Transfer of Property Act either, because ownership of the leasehold was not to pass until all instalments and other sums were paid and the lease was granted. As no subsisting charge existed, the interest could not fall within section 9(1)(iv), including its alternative limb relating to capital by the use of which the property was acquired.

Conclusion: The claim under section 9(1)(iv) failed and was against the assessee.

Final Conclusion: The reference was answered against the assessee, and the interest on unpaid instalments was held not deductible under any of the provisions invoked.

Ratio Decidendi: A deferred purchase price with interest on unpaid instalments does not constitute capital borrowed for business, nor is such interest deductible as business expenditure unless it is wholly and exclusively incurred for the business; where no subsisting charge exists on the property, section 9(1)(iv) also does not apply.

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