L.K. TRUST versus COMMISSIONER OF INCOME TAX & ANR.

Citation: [2026] 5 S.C.R. 567 · Decided: 07-05-2026 · Supreme Court of India · Bench: J.B. PARDIWALA, UJJAL BHUYAN · Disposal: Appeal(s) allowed

Judgment (excerpt)

[2026] 5 S.C.R. 567 : 2026 INSC 474
L.K. Trust 
v. 
Commissioner of Income Tax & Anr.
(Civil Appeal No. 527 of 2012)
07 May 2026
[J.B. Pardiwala and Ujjal Bhuyan, JJ.]
Issue for Consideration
Issue arose whether the appellant-assessee is entitled to a 
deduction of Rs.21,74,234/- being the interest paid by it in respect 
of the loan availed from the Corporation Bank u/s.36(1)(iii) of the 
Income Tax Act 1961.
Headnotes†
Income Tax Act 1961 – s.36(1)(iii) – Deduction in respect of 
amount of the interest paid in respect of capital borrowed 
for the purposes of business or profession – Assessee, 
if eligible for deduction of interest paid to the bank  
u/s.36(1)(iii) – Assessee borrowed loan from the Bank and paid 
interest in order to invest the same in its share business – 
Said sum transferred to a group company by the assessee, 
who in turn advanced it to one to purchase shares of a 
company on his behalf – Assessing Officer took the view that 
the assessee not entitled to claim deduction u/s.36(1)(iii) and 
the interest paid on the loan was disallowed – In appeal, the 
deduction was disallowed – However, the ITAT allowed the 
deduction – Thereagainst, appeal by the Revenue, allowed by 
the High Court upholding the order passed by the Assessing 
Officer that the assessee not entitled to claim deduction  
u/s.36(1)(iii) and disallowed the interest paid on the loan – 
Correctness:
Held: Assessee entitled to seek deduction of the amount of the 
interest paid in respect of the capital borrowed for the purposes 
of the business – For s.36(1)(iii), “interest” is restricted to that on 
money borrowed and not on debt incurred – Essence of interest 
is that it is a payment which becomes due because the creditor 
has not had his money at his disposal – It may be regarded either 
as representing the profit he might have made if he had had the 
568
[2026] 5 S.C.R.
Supreme Court Reports
use of his money, or conversely, the loss he suffered because he 
had not that use – Legislature has, u/s.36(1)(iii) permitted as an 
allowance interest paid on capital borrowed for the purposes of 
the business; and the capital, in this context, means money and 
not any other asset purchased on credit – It appears on a plain 
reading of the impugned order that according to the High Court, 
the business of the subsidiary company cannot be considered in 
law as the business of the assessee – High Court took the view 
that the finding of the tribunal based on commercial expediency 
not correct, and that the amount borrowed was ultimately utilised 
for the benefit of the subsidiary company of the assessee and not 
for the business of the assessee as such – High Court erred in 
taking the said view – Impugned judgment and order passed by 
the High Court set aside. [Paras 14-18, 20, 22-24]
Case Law Cited
Bombay Steam Navigation Co. Pr. Ltd. v. CIT, 56 ITR 52 (SC); 
Madhav Prasad Jatia v. CIT (SC), 118 ITR 200; Sharp Business 
System v. CIT, 2025 INSC 1481 : 2025 SCC OnLine SC 
2892 –  referred to.
List of Acts
Income Tax Act, 1961.
List of Keywords
Interest; Deduction of the interest paid in respect of capital borrowed 
for the purposes of business or profession; Loan; Assessee, if 
eligible for deduction of interest paid to the bank u/s. 36(1)(iii); 
Invest in share business.
Case Arising From
CIVIL APPELLATE JURISDICTION: Civil Appeal No.  
527 of 2012
From the Judgment and Order dated 01.03.2010 of the High Court 
of Karnataka at Bengaluru in ITA No. 175 of 2001.
Appearances for Parties
Adv. for the Appellant(s):
Naveen Kumar.
[2026] 5 S.C.R. 
569
L.K. Trust v. Commissioner of Income Tax & Anr.
Advs. for the Respondent(s):
Arijit Prasad, Sr. Adv., Mrs. Alka Aggarwal, Ms. Shraddha 
Deshmukh, Ishaan Sharma, Digvijay Dam,  Sudarshan Lamba.
Judgment / Order of the Supreme Court
Order
1.	
This appeal is at the instance of the assessee and is directed against 
the Judgment and Order passed by the High Court of Karnataka 
dated 1-3-2010 in Income Tax Appeal No. 175 of 2001 by which the 
appeal preferred by the Revenue against the Order passed by the 
Income Tax Appellate Tribunal came to be allowed.
2.	
The short point that falls for our consideration is whether the 
appellant-assessee is entitled to a deduction of Rs.21,74,234/- 
(Rupees Twenty One Lakh, Seventy Four Thousand, Two Hundred 
and Thirty Four only) being the interest paid by it in respect of the 
loan availed from the Corporation Bank under Section 36(1)(iii) of 
the Income Tax Act 1961 (

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