Business nexus for interest deduction fails where overdraft funds are diverted for a partner's family member's residential purchase.

Interest on overdraft funds used to advance money to a partner's daughter for purchase of a flat lacked the necessary business nexus, because the borrowing was diverted away from the assessee-firm's business. The interest attributable to that non-business advance was therefore not deductible as business expenditure, and disallowance of proportionate interest was justified.

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Issues: Whether interest paid on overdraft funds was allowable to the extent the borrowed money was advanced to a partner's daughter for purchase of a flat, or whether the corresponding interest was liable to be disallowed as expenditure not incurred for the assessee-firm's business.

Analysis: The overdraft was used not in the assessee-firm's business but to advance funds to Smt. Rashida for her personal residential purchase. The borrowing therefore lacked the required business nexus, and the interest attributable to that non-business advance could not be treated as deductible business expenditure.

Conclusion: The disallowance of proportionate interest was justified and the assessee was not entitled to deduction of interest on the amount diverted for non-business use.

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