Deductibility under section 57(iii): repayment on premature fixed deposit termination used for share investment was allowed as income-linked expenditure.

Repayment made to a bank on premature termination of a fixed deposit, where the funds were redeployed to invest in shares, was held deductible as expenditure incurred for earning income under section 57(iii) of the Income-tax Act, 1961. The Court treated the repayment as functionally equivalent to borrowing money for the share investment and paying interest on that borrowing. On that basis, the necessary nexus between the expenditure and the income-earning purpose was established, and the deduction was allowed against the Revenue.

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Issues: Whether the sum repaid to a bank on premature termination of a fixed deposit, withdrawn for the purpose of investing in shares, was deductible under section 57(iii) of the Income-tax Act, 1961.

Analysis: The amount was repaid because the fixed deposit was terminated before maturity so that the funds could be deployed in the purchase of shares. The Court treated this as functionally equivalent to borrowing money for the same investment purpose and paying interest thereon. Since the expenditure was incurred for the purpose of earning income through investment in shares, the necessary nexus under section 57(iii) was established.

Conclusion: The deduction was allowable under section 57(iii) and the question was answered in the affirmative, against the Revenue.

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