Business nexus for interest deduction denied where borrowing funded a promised donation and no completed trust was proved.

Interest on borrowing is deductible only when the loan is taken for business purposes or on recognised commercial expediency. An overdraft used to meet a promised donation to an engineering college did not satisfy that test, so the interest was not allowable under either provision cited. A claimed deduction relating to Rs. 4,50,000 and its accretion also failed because the material did not show that the amount had actually been donated or validly impressed with trust; entries in the assessee's own books could not by themselves complete a gift or create a charitable trust. The article thus states that both deductions were disallowed for want of business nexus and proof of divestment.

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Issues: (i) Whether interest paid on overdraft borrowed to meet a promised donation of Rs. 5,50,000 to an engineering college was allowable as a deduction under section 10(2)(iii) or section 10(2)(xv) of the Indian Income-tax Act, 1922; (ii) Whether interest credited on Rs. 4,50,000 and accretion thereto was an admissible deduction where the amount had not been shown to have been donated or impressed with a valid trust in favour of the engineering college.

Issue (i): Whether interest paid on overdraft borrowed to meet a promised donation of Rs. 5,50,000 to an engineering college was allowable as a deduction under section 10(2)(iii) or section 10(2)(xv) of the Indian Income-tax Act, 1922.

Analysis: A borrowing yields deductible interest only when the money is borrowed for the purposes of business. The payment here was made to an educational institution as a donation and not for any business purpose. The fact that the assessee might otherwise have had to liquidate income-yielding assets did not convert the borrowing into business expenditure. No commercial expediency was shown, and the expenditure lacked the necessary nexus with the assessee's business.

Conclusion: The interest on Rs. 5,50,000 was not allowable as a deduction under either section 10(2)(iii) or section 10(2)(xv), and the question was answered against the assessee.

Issue (ii): Whether interest credited on Rs. 4,50,000 and accretion thereto was an admissible deduction where the amount had not been shown to have been donated or impressed with a valid trust in favour of the engineering college.

Analysis: The record did not establish that the assessee had actually donated Rs. 10 lakhs or divested herself of the Rs. 4,50,000. The contemporaneous material was absent, and the later certificate did not prove that the amount had been transferred out of the assessee's control. The entry in the assessee's own books could not by itself create a completed gift or trust for charitable purposes.

Conclusion: The Rs. 4,50,000 and the accretion thereto continued to belong to the assessee, and the claimed deduction was not admissible; the question was answered against the assessee.

Final Conclusion: The claimed deductions failed on both counts because the borrowing was unrelated to the business and the alleged donation of Rs. 4,50,000 was not proved to have been completed.

Ratio Decidendi: Interest is deductible only where the borrowing is incurred for the purposes of the assessee's business or on grounds of commercial expediency; a borrowing undertaken to meet a non-business payment, even if it preserves income-yielding assets, does not qualify for deduction.

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