Claim for interest paid on borrowings under income from other sources while firm returned losses with debit balance in partner's capital account

Facts:

Assessee claimed interest paid on borrowings under Section 57(iii) (Expenses under income from other sources) citing that the firm where he had invested the borrowed funds was incurring losses and the capital account of his was also in debit balance though he had to pay interest for his borrowed/invested capital. The plea raised was though there was no taxable income which arose from the firm by way of salary/interest under business income the expense ought to have to be allowed under Section 57(iii) basing CIT v. Rajendra Prasad Moody, Calcutta (1978) 115 ITR 519 (SC) : 1978 TaxPub(DT) 1028 (SC) which held that expense allowability does not mean income has to flow necessarily from such expense. This did not meet the eye of the lower authorities. Aggrieved assessee went in higher appeal -

Held against the assessee that the income from firm interest and salary was assessable as business income under Section 28(v). No expense under Section 57(iii) could be allowed in the absence of any such income.

Ed. Note: The share of profit from firm is exempt as firm itself is a pass thru concept under Income Tax Act, 1961. The interplay of Section 14A would have also disallowed any such expense if not wholly at least partly. What made the assessee claim expense under Section 57(iii) is not known when he could have claimed it under business or profession and contested his stand basing a number of judicial precedents on allowable expenditure.

Case: Rashmin Ramniklal Vora v. ITO2023 TaxPub(DT) 1562 (Ahd-Trib)