Interest on borrowed capital remains deductible if the funds were used for business, subject to factual verification.

Interest on borrowed capital remains allowable where the borrowed funds are used for business purposes. The Tribunal noted that a partner's private use of the firm's current earnings does not, by itself, defeat the deduction if the borrowings themselves were applied to business. Because the actual utilisation of the borrowed monies had not been properly examined, the disallowance was set aside and the matter sent back for fresh verification of business use. The assessee's claim was left open for allowance if such use is established on scrutiny.

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Issues: (i) Whether interest on borrowed money is allowable where the borrowings are claimed to have been used for business purposes, and whether the matter required verification of the actual utilisation of funds.

Analysis: The assessee had borrowed monies on which interest was paid, but the factual question whether the borrowed funds were in fact utilised wholly for business had not been adequately examined. The Tribunal held that if the borrowings were utilised for the purpose of business, the fact that a partner may have used the firm's current earnings for private needs would not by itself disentitle the assessee to the interest claim. The matter therefore required fresh scrutiny of utilisation of the borrowed funds.

Conclusion: The disallowance was set aside and the matter was remitted to the assessing authority for verification of the business use of the borrowed monies; the assessee's claim remained open to allowance if such use was established.

Final Conclusion: The decision granted the assessee only partial relief by restoring the matter for fresh factual examination, while affirming the governing principle that interest on borrowings remains allowable if the borrowed funds are used for business purposes.

Ratio Decidendi: Interest on borrowed capital is allowable when the borrowing is for the purpose of business, and private use of the firm's own current earnings by a partner does not automatically defeat the claim if the borrowed monies themselves were used for business.

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