This is appeal against order dated 22-8-1984 of Commissioner made under section 263 of Income-tax Act, 1961 ('the Act') directing ITO to modify assessment order by disallowing Rs. 15,940 being interest paid to bank and also legal charges and audit fees of Rs. 7,800. In assessment order, ITO had allowed Rs. 15,940 being interest paid to bank and also Rs. 7,800 being legal charges and audit fees. Commissioner was of view that order of ITO is erroneous and prejudicial to interests of revenue. Accordingly, he issued notice under section 263 in response to which assessee filed reply and appeared before Commissioner. After considering objections of assessee, Commissioner held that immediate purpose in taking loan from bank being to discharge estate duty liability, connection between payment of interest and earning of interest income from fixed deposits is too remote to be taken into account and it would not qualify for deduction under section 57(iii) of Act. Thus, sum of Rs. 15,940 should not have been allowed as deduction by ITO. He further held that legal expenses of Rs. 7,200 are not allowable in computing assessee's income under head 'Income from house property'. He also held that there is no provision to allow audit fees of Rs. 600. Thus, sum of Rs. 7,800 should not have been allowed by ITO. Accordingly, he directed ITO to disallow Rs. 15,940 and Rs. 7,800 and modify assessment. Against said order, assessee has preferred this appeal. 2. learned counsel for assessee submitted that there is charge under section 74(2) of Estate Duty Act, 1953, on movable property. liquid funds were not available for payment of estate duty liability. Hence, there was no alternative except to take loan from bank on security of fixed deposits in order to pay estate duty liability. Otherwise income-yielding asset has to be sold. He kly urged that expenditure was incurred for preserving income-earning asset. Hence, interest was rightly allowed by ITO and Commissioner was wrong in directing him to disallow same. He placed reliance on decision of Bombay High Court in CIT v. H. H. Maharani Shri Vijaykuverba Saheb of Morvi [1975] 100 ITR 67 and decision Supreme Court in Seth R. Dalmia v. CIT [1977] 110 ITR 644. He further urged that legal expenses of Rs. 7,200 were incurred to defend suit filed by tenants for specific performance of agreement of sale which assessee had to defend. Thus, legal expenses are allowable. He also urged that audit fee of Rs. 600 is also allowable. learned departmental representative kly urged that interest paid on loan taken for discharge of estate duty liability is not allowable expenditure under section 57(iii) as it is not connected with earning of income. Hence, Commissioner was right in directing ITO to disallow sum of Rs. 15,940. He placed reliance on decisions in Padmavati Jaykrishna v. CIT [1981] 131 ITR 653 (Guj.) and CIT v. Mrs. Indumati Ratanlal [1968] 70 ITR 353 (Guj). Coming to legal expenses he submitted that it is not allowable deduction under section 24 of Act. audit fee of Rs. 600 is also not allowable. Thus, he supported order of Commissioner. In reply learned counsel for assessee distinguished decisions relied on by revenue. 3. We have considered rival submissions. question for consideration is whether interest paid on loan taken from bank for discharge of estate duty liability is deductible as expenditure under section 57(iii). Shri D. D. Italia died leaving will and as per terms of will Shri J. D. Italia along with others were appointed excutors to administer estate. Accordingly on death of Shri D. D. Italia, executors took over estate for administration. executors did not have liquid funds for payment of estate duty liability. Hence, loan was raised from bank on security of fixed deposits to pay estate duty liability. Section 74(2) creates charge in proportion on value of any beneficial interest in possession of movable proportion on value of any beneficial interest in possession of movable property which passes to any person other than legal representative of deceased. In order to preserve income-earning movable asset, executors preferred to raise loan from bank and to discharge estate duty liability. Thus, nexus between expenditure incurred and earning of income has been established. By raising loan on security of fixed deposits, executors were paying only 2 per cent extra interest and preserved income- earning asset. In our view expenditure incurred by way of interest on loan raised to discharge estate duty liability is allowable deduction under section 57(iii) as there is nexus between expenditure incurred and earning of income. In H. H. Maharani Shri Vijaykuverba Saheb of Morvi's case (supra) this very issue came up for consideration before Bombay High Court. It was held therein that expenditure in form of interest paid to bank on borrowings for discharging estate duty liability would have to be regarded as expenditure incurred solely for purpose of earning such income and would fall within section 12(2) of Indian Income-tax Act, 1922. above decision was approved by Supreme Court in Seth R. Dalmia's case (supra). It was observed as under: "In CIT v. H. H. Maharani Vijaykuverba Saheb of Morvi [1975] 100 ITR 67 (Bom.), Division Bench of Bombay High Court held that deduction which is permissible under sub-section (2) of section 12 is expenditure incurred solely for purpose of making or earning income which has been subjected to tax and dominant purpose of expenditure incurred must be to earn income. It was further held that connection between expenditure and earning of income need not be direct, and even indirect connection could prove nexus between expenditure incurred and income. We fully agree with view taken by Bombay High Court." (p. 652) We respectfully follow above decision. 4. In Smt. Virmati Ramkrishna v. CIT [1981] 131 ITR 659 and Padmavati Jaykrishna's case (supra) Gujarat High Court held that liability to pay tax under Income-tax Act, 1961, Wealth-tax Act, 1957 and Gift-tax Act, 1958, is personal liability and any expenditure incurred on that account is not allowable deduction under section 57(iii). In above decisions, question whether estate duty liability was charge on movable property and whether interest paid on loan taken from bank is allowable as expenditure under section 57(iii) did not directly come up for consideration. In these decisions, reliance was placed on earlier decision of same Court in Mrs. Indumati Ratanlal's case (supra) wherein it was held that there is no difference between interest paid on money borrowed to pay income-tax and interest on money borrowed to pay estate duty. However, it was observed as under: "... But one thing is clear that if property is received by assessee subject to charge for payment of liability and money are borrowed for clearing charge by discharging liability, interest paid on borrowed money would be allowable expenditure. purpose of borrowing would be to save property by freeing it from encumbrance and thus to facilitate earning of income and there would accordingly be requisite connection or nexus between borrowing of money and earning of income. To illustrate point, taken case where property is received by assessee subject to charge for payment of money with growing interest. Would interest paid by assessee to charge-holder not be allowable expenditure in computing assessable income from property? It would be in outgoing in respect of property just like municipal tax of cess and would be expenditure incurred for purpose of making or earning income from property within meaning of section 57(iii). But if this be so, what difference should it make on principle if, instead, moneys are borrowed by assessee for discharging liability to charge-holder and clearing charge on property and interest is paid on borrowed moneys? If, therefore, at date when estate duty was paid by assesse, shares were charged with payment of liability for estate duty, we must hold that interest paid on borrowed moneys would be admissible expenditure under section 57(iii)" . (p. 364) above observations support assessee's case. Under section 74(2) there was charge on movable property. In order to discharge estate duty liability excutors raised loan on security of fixed deposits which were subjected to charge under section 74(2). Thus, interest paid on loan taken from bank on fixed deposits which earned income is allowable expenditure under section 57(iii) as there is nexus between expenditure incurred and earning of income. We prefer to follow with respect decision of Bombay High Court in H. H. Maharani Shri Vijaykuverba Saheb of Morvi's case (supra) which has met approval of Supreme Court in Seth R. Dalmia's case (supra). In our view, Commissioner was not right in directing ITO to disallow sum of Rs. 15,940 being interest paid to bank. 5. next item is with regard to legal expenses of Rs. 7,200. it 5. next item is with regard to legal expenses of Rs. 7,200. it appears that buharis were tenants of building belonging to assessee. They had filed suit for specific performance of agreement to sell property which was in their occupation. assessee had to defend that suit. Legal expenditure of Rs. 7,200 incurred in defending that suit has been claimed as allowable deduction. In our view sum of Rs. 7,200 is not allowable deduction under section 24. It is only deduction specified under section 24 that could be allowed in computing income under head 'Income from house property'. We agree with reasons given by Commissioner for disallowing sum of Rs. 7,200. Similarly, sum of Rs. 600 being audit fees is not allowable as deduction. It does not come under section 80VV of Act. Thus, Commissioner was right in directing ITO to disallow sum of Rs. 7,200 being legal expenses and Rs. 600 being audit fees. 6. Thus, Commissioner was wrong in directing ITO to modify assessment by disallowing Rs. 15,940 being interest paid to bank. But he was justified in directing ITO to disallow sum of Rs. 7,200 being legal expenses and Rs. 600 being audit fees. Accordingly, we modify Commissioner's order and direct ITO to modify assessment order accordingly. 7. In result, appeal is partly allowed. *** J.D. ITALIA v. INCOME TAX OFFICER