Partner's interest deduction on borrowed capital for firm investment allowed despite firm using funds to pay taxes.

Interest paid by a partner on capital borrowed to invest in a firm is deductible under section 67(3) while computing the partner's share of income, because the provision expressly allows such deduction and does not require the firm to use the invested funds only for business purposes. The firm's use of the money to pay its taxes does not disqualify the deduction. The question was answered in favour of the assessee.

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Issues: Whether interest paid by a partner on capital borrowed for investment in a firm is deductible under section 67(3) of the Income-tax Act, 1961 even if the firm used the invested amount for payment of its taxes.

Analysis: Section 67(3) expressly permits deduction of interest paid by a partner on capital borrowed for the purpose of investment in the firm while computing the partner's share of income under the head "Profits and gains of business or profession". The provision contains no requirement that the firm must have used the borrowed investment amount only for its business purposes. The fact that the firm applied the money towards tax payment does not take the case outside the section.

Conclusion: The interest was deductible under section 67(3), and the question was answered in favour of the assessee.

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