Section 57(iii) deduction requires a direct nexus with income; mixed-purpose interest expense was disallowed.

Interest deficit was not deductible under section 57(iii) because the expenditure was not shown to have been laid out wholly and exclusively for earning income from other sources. The governing test is whether the expense has a direct or at least proximate nexus with the income sought to be earned, judged by its manifest and immediate purpose rather than the assessee's motive. On the facts, no different principle was attracted by the later Supreme Court decision relied on, so the mixed-purpose nature of the outlay defeated deduction and the issue was answered for the Revenue.

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Issues: Whether interest deficit of Rs. 8,666 was deductible in computing income under section 57(iii) of the Income-tax Act, 1961.

Analysis: Deductibility under section 57(iii) depends on the nature of the expenditure and requires that it be laid out wholly and exclusively for earning income from other sources. The expenditure must have a direct or at least proximate nexus with the income sought to be earned, and the real test is the manifest and immediate purpose of the expenditure rather than the assessee's motive. The principles earlier applied by the Court remained unaffected by the later Supreme Court decision relied upon, and on the facts no basis was shown to bring the case within any different principle.

Conclusion: The interest deficit was not deductible, and the question was answered in the affirmative in favour of the Revenue and against the assessee.

Ratio Decidendi: An expenditure is deductible under section 57(iii) only if it is incurred wholly and exclusively for earning income and bears a clear nexus with that income; mixed-purpose expenditure is not allowable.

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