Deduction of Interest on Borrowed Funds Invested as Partner’s Capital

The Kerala High Court examined whether a partner could claim deduction under Section 36(1)(iii) of the Income-tax Act, 1961 in respect of interest paid on funds borrowed from the open market and invested as capital contribution in a partnership firm. 

The Court held that the deduction was impermissible because the borrowing was not for the assessee’s own business or profession, but for investment as partner’s capital in a firm carrying on business independently. 

The appeal was accordingly dismissed.