Business deduction denied for borrowing used to fund a charitable promise, and no completed gift or trust was shown.

Interest on an overdraft used to fulfil a promised charitable donation was not deductible as business expenditure because the borrowing was for a personal charitable obligation, not for the purposes of business, and book entries did not alter that character. Interest credited to the engineering college account on the remaining amount was also not deductible because a completed gift or trust was not established: the amount had not been effectively transferred or accepted, and the assessee retained control over it. The text states that a mere promise or accounting treatment does not create an enforceable trust or completed donation without actual delivery and acceptance.

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Issues: (i) Whether interest paid on the overdraft of Rs. 5.5 lakhs taken to meet a charitable donation was deductible as expenditure laid out wholly and exclusively for the purposes of business under section 10(2)(iii) or section 10(2)(xv) of the Indian Income-tax Act, 1922. (ii) Whether the interest credited to the engineering college account on the balance sum of Rs. 4.5 lakhs and its accretion was an admissible deduction on the footing that the gift or trust in favour of the college had been completed.

Issue (i): Whether interest paid on the overdraft of Rs. 5.5 lakhs taken to meet a charitable donation was deductible as expenditure laid out wholly and exclusively for the purposes of business under section 10(2)(iii) or section 10(2)(xv) of the Indian Income-tax Act, 1922.

Analysis: The deduction under section 10(2)(iii) requires borrowing for the purpose of business, and under section 10(2)(xv) the expenditure must be laid out wholly and exclusively for the purpose of business. The borrowing in question was found to have been made to discharge a personal charitable obligation to complete the promised donation, not to carry on the assessee's business. The fact that the payment was routed through an overdraft account or that book entries were made in the capital and college accounts did not alter the real character of the borrowing or convert it into business expenditure.

Conclusion: The interest on Rs. 5.5 lakhs was not deductible and the finding was against the assessee.

Issue (ii): Whether the interest credited to the engineering college account on the balance sum of Rs. 4.5 lakhs and its accretion was an admissible deduction on the footing that the gift or trust in favour of the college had been completed.

Analysis: A completed donation or trust required proof that the amount had actually been made over and accepted by the college. The certificate and the assessee's own entries showed only a promise of donation and that Rs. 4.5 lakhs remained with the assessee as a loan or amount still under her control. There was no material to show that the college had accepted that balance as a gift or that any enforceable trust had come into existence. In the absence of such completion, the credited interest remained part of the assessee's own funds.

Conclusion: The interest credited on Rs. 4.5 lakhs was not deductible and the finding was against the assessee.

Final Conclusion: The claims for deduction failed on both the borrowing issue and the alleged completed gift or trust issue, so the Revenue succeeded in all material respects.

Ratio Decidendi: Interest on money borrowed to meet a personal charitable obligation is not deductible as business expenditure unless the borrowing is for the purposes of business, and a mere promise or book entry does not create a completed gift or trust without actual transfer and acceptance.

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