Interest on borrowed funds invested as partnership capital is not deductible unless used for the assessee's own business purpose.

Interest on money borrowed and invested merely as capital in a firm is not deductible under Section 36(1)(iii) unless the borrowing is for the assessee's own business or profession. As the partner was not carrying on any business on her own and the firm alone conducted the business, the borrowed funds could not be treated as capital borrowed for her business purpose. The deduction claim was therefore rejected.

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Issues: Whether interest on borrowed funds invested by a partner as capital in a firm is deductible under Section 36(1)(iii) of the Income-tax Act, 1961.

Analysis: The appellant borrowed money and invested it as capital in the firm of which she was a partner. The claimed deduction was examined against the requirement that interest must relate to capital borrowed for the purpose of the assessee's own business or profession. Since the admitted position was that the firm carried on the business and the appellant herself was not conducting any business on her own, the borrowed funds could not be treated as capital borrowed for the appellant's business purpose. The claimed deduction was therefore not available to her.

Conclusion: The claim for deduction under Section 36(1)(iii) was rejected and the appeal failed.

Ratio Decidendi: Interest on money borrowed by an assessee and invested merely as capital in a firm is not deductible under Section 36(1)(iii) unless the borrowing is for the assessee's own business or profession.

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