MADHAV PRASAD JATIA versus COMMISSIONER OF INCOME TAX, U.P., LUCKNOW

Citation: [1979] 3 S.C.R. 745 · Decided: 17-04-1979 · Supreme Court of India · Bench: P.N. BHAGWATI · Disposal: Dismissed

Judgment (excerpt)

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74 5 
MADHAV PRASAD JATIA 
v. 
COMMISSIONER OF INCOME TAX, U.P., LUCKNOW 
April 17, 1979 
[P. N. BHAGWATI AND V. D. TULZAPURKAR, JJ.] 
Income-Tax Act 1922, 
Section l0(2)(iii), !0(2)(xv)-Deduction against 
business incorne-Condition.r 'lo be satisfied under 
Section 
10{2)(iii) and 
10(2)(.[V) for c!ain1ing deduction, explained-Words and Phrases-"For the 
purpose of business'', scope of. 
The appellant-assessee carried on money-lending and other businesses and 
derived income from various sources such as investment in shares, properties 
and business. 
Pursuant to her promise to donate a sum of Rs. 10 lacs for 
setting up an Engiiieer!~1g College to commemorate the memory of her lat'e 
husband, she actually made over a sum of Rs. 5.5 lacs by depositing the same 
in a joint account opened in the name of the District ~fagistrate, Bulandshahr 
aud Smt. Indcrmani Jntia for the College. 
The lxtlance of Rs. 4.5 lacs was 
left with the asscssee and V.'as treated as a debt to the institution and interest 
thereon at 6% per annum with effect from October 21, 1955 was to be finally 
deposited in the technical institute account. Though in the books of accounts, 
on November 21, 1955, a sum of Rs. 10 lacs was debited to her capital account 
and corresponding credit was given to the account of the institute, the assessec 
aictual1y paid the sum of ~- 5.5 lacs to the institution on January 7, 1956 
from the overdraft account which she had with the Central Bank of India, 
Aligarh. 
In the assessment proceedings for the assessment years 1957-58, 1958-59, 
1959-60, the assessee claimed the deduction of these sums-Rs. 20,107/- Rs. 
25,470/- ood Rs. 18,445/- being th'e respective items of interest paid by her to 
the bank on Rs. 5.5 lacs during the samvat years. The assessee contended that 
she had preferred to draw on the overdraft account of the bank for the pur-
pose of paying the institution in order to save her income earning assets, namely, 
the shares, which she would have otherwise been required to dispose of :lnd 
therefore, the interest paid by her should be allowed. As regards interest on 
the remaining sum of Rs. 4.5 lacs (which was left as a loan with the assessee) 
that was debited to her account, the assessee claimed that it was a permissible 
deduction. 
A 
B 
c 
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E 
F 
The taxing authorities took the view that the claim for deduction was not 
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admissible either against business income under section 10(2) or against income 
from investments under section 12(2) of the Income Tax Act, 1922. 
The 
appeal!'i preferred to the Appellate Tribunal failed. 
The references made to 
the High Court went against the assessee. 
Dismissing the appeals by special leave, the Court 
HELD : I. Under section 10(2)(iii) of Income Tax Act, 1922, three am-
ditions are required to be satic;fi'ed in order to enable the ru;sessee to claim a 
deduction in respect of interest on borrowed capital, namely, (a) that money 
8-330 SCI/79 
H 
746 
SUPREME COURT REPORTS 
[1979] 3 s.c.R. 
A 
(ca.pita!) must have been borrowed by the assesse·e, (b) that it must have been 
borrDwcd for the purpose of business and (c) that the assessee must paid 
interest on the said amount and claimed it as a deduction. 
[7SSB-C] 
2. As regards the claim for deduction in respect of expenditure under s. 
!0(2)(xv), the assessee must also satisfy three conditions namely (a) it (the 
expenditure) must not be an allowance of the nature described in clauses (i) 
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to (xiv); (b) it must not be in the nature of capital expenditure or personal 
expenses of the assessee and (c) it must have been laid out or expended wholly 
and exclusively for the purpose of his business. [755C-D] 
c 
3. The expression "for the purpose of business" occurring in s.10(2)(iii) 
as also in 10(2)(xv) is wider in scope than the expression "for the purpose of 
earning income profits or gains" occurring in s. 12(2) of the Act and, there-
fore, the scope for allowing a deduction uuder s. 10(2)(iii) or 10(2)(xv) 
would be much wider than the one available under s. 12(2) of the Act. 
[755D-EJ 
(.'on1n1issioner of Income Tax v. Malayala1n Plantations Ltd., 53 ITR 140 
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(SC); applied. 
4. Neither there had been any confusion of the issue nor any 
wrong 
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approach had been adopted by the taxing authorities, the Tribunal or the Hi~h 
Court. The case of the assessee had been considered both by the Tribunal as 
~ell as by the High Court under s.10(2)(iii) or 10(2)(xv) and not under 
s.12(2)

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