Deduction for premature fixed deposit repayment was disallowed because it was not incurred to earn the interest income.

Interest accrued on fixed deposits up to the date of premature termination was taxable in the relevant year, but the repayment made to the bank on early closure had no direct connection with earning that interest. Because the repayment arose from the termination itself and not as an expenditure incurred for earning the interest income, the claimed deduction was correctly disallowed against that income.

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Issues: Whether the amount repaid to the bank on premature termination of fixed deposits could be allowed as a deduction against interest earned on those fixed deposits during the year.

Analysis: The interest brought to tax represented the accrual on the fixed deposits up to the date of termination. The repayment demanded by the bank arose only because the deposits were prematurely terminated and the earlier interest had to be recalculated. That repayment had no direct connection with the interest earned during the relevant year and was not an incurred for earning that income.

Conclusion: The deduction was correctly disallowed and the question was answered against the assessee.

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