Interest deduction under section 57(iii) fails where lower lending rates to related concerns lack satisfactory justification.

Interest expenditure claimed against interest income was disallowed because the assessee charged related concerns a lower rate than unrelated parties without a satisfactory explanation. The authorities treated the rate disparity as relevant to the justification for the expenditure under section 57(iii), and rejected the argument that reasonableness could not be examined in such a case. Reliance on decisions concerning business expenditure was held inapposite, since the issue was the differential treatment in comparable lending transactions rather than the general admissibility of interest. The disallowance was therefore upheld and the claim failed.

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Issues: Whether the disallowance made under section 57(iii) for interest expenditure was sustainable where the assessee charged a lower rate of interest to related concerns than to unrelated parties.

Analysis: The assessee claimed deduction of interest expenditure against interest income. The authorities examined the rate disparity between loans advanced to related parties at 8.50% and to unrelated parties at 12%, and found no satisfactory explanation for the lower rate charged to related concerns. The contention that the reasonableness of the expenditure could not be questioned was rejected, the point being not the general admissibility of interest but the justification for the differential treatment in comparable transactions. The reliance placed on authorities dealing with expenditure incurred for business or profession was found inapposite to the present issue.

Conclusion: The disallowance was upheld and the assessee's claim under section 57(iii) failed.

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