Section 57(iii) deduction requires a direct nexus with earning income; unrelated NABARD interest cannot be set off against employee-loan interest.

Interest earned from loans advanced to employees was treated as income from other sources, but deduction under section 57(iii) was unavailable because the interest paid to NABARD was not expenditure laid out wholly and exclusively for earning that income. No direct nexus existed between the two interest streams, so the claimed set-off was impermissible and the assessee's claim failed.

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Issues: Whether interest income earned by the assessee by extending loans to its employees could be set off against the interest paid by it to NABARD under section 57(iii) of the Income-tax Act, 1961.

Analysis: The interest earned on loans advanced to employees was accepted as income from other sources. Deduction under section 57(iii) is available only for expenditure laid out wholly and exclusively for the purpose of making or earning that income. The interest paid to NABARD was not expenditure incurred for earning the employee-loan interest income, and no direct nexus existed between the two streams of interest.

Conclusion: The set-off claimed by the assessee was not permissible and the issue is answered against the assessee and in favour of the Revenue.

Final Conclusion: The appeal succeeds, and the assessee is not entitled to adjust the interest paid to NABARD against the interest income derived from loans advanced to its employees.

Ratio Decidendi: For deduction under section 57(iii) of the Income-tax Act, 1961, the expenditure must be incurred wholly and exclusively for earning the relevant income, and a set-off is impermissible where the claimed outgo lacks a direct nexus with that income.

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