THE HON'BLE SRI JUSTICE DILIP B.BHOSALE AND HON BLE SRI JUSTICE A.RAMALINGESWARA RAO I.T.T.A.Nos.102, 85 and 86 of 2005 COMMON JUDGMENT: (per Hon ble Sri Justice Dilip B.Bhosale) These three income tax appeals under Section 260A of Income Tax Act, 1961 (for short Act ) arise from orders passed by Income Tax Appellate Tribunal, Hyderabad Bench B , all dated, 22.02.2000, passed in appeals filed by appellants-assessee. Tribunal dismissed all appeals and affirmed orders of Commissioner of Income Tax (Appeals), confirming disallowance of interest of Rs.24,511/-, Rs.94,981/- and Rs.94,328/- respectively for assessment year 1990-91. appellants claimed deduction of aforementioned interest amounts for assessment year 1990-91, as provided for under Section 57 (iii) of Act, on borrowed capital claiming it to be expenditure, not being in nature of capital expenditure, laid out or expended wholly or exclusively for purpose of making or earning such income from other sources. appeals were admitted on following substantial question of law: Whether on facts and in circumstances of case, Income Tax Appellate Tribunal was justified in holding that appellant was not entitled to deduct interest paid on borrowings on ground that it was not proved that borrowed funds were utilized for earning income from business? We have perused orders passed by all three Authorities including appellate Tribunal and find that appellants claim to deduct amount of interest was rejected, holding that he did not prove/establish that borrowed funds were utilized either for purchasing/selling shares or its trading. appellants deal in sale and purchase of shares and their source of income is mainly from commission, brokerage, dividend and interest, which does not require any capital investment. Though it has come on record that amount of interest was paid by appellants on amounts borrowed by them, they did not place any evidence/materials on record to show/establish that funds were borrowed by them for earning income from their business of sale and purchase of shares. In other words, appellants did not place any materials on record to show that raised/borrowed capital/funds was/were invested in business or utilized for purpose of buying and selling of shares and earning income therefrom. Learned counsel appearing for appellants after inviting our attention to Section 57 (iii) of Act and judgment of Supreme Court in Commissioner of Income Tax, West Bengal-III [1] Vs. Raghunandan Prasad Moody submitted that it is not necessary for assessee to earn income in relation to borrowings to claim deduction as provided for under Section 57 (iii) of Act. relevant paragraph in judgment of Supreme Court in Prasad Moody s case (supra), relied upon by learned counsel for appellants, reads thus: What s. 57 (iii) requires is that expenditure must be laid out or expended wholly and exclusively for purpose of making or earning income. It is purpose of expenditure that is relevant in determining applicability of s. 57 (iii) and that purpose must be making or earning of income. S. 57 (iii) does not require that this purpose must be fulfilled in order to qualify expenditure for deduction. It does not say that expenditure shall be deductible only if any income is made or earned. There is in fact nothing in language of s. 57 (iii) to suggest that purpose for which expenditure is made should fructify into any benefit by way of return in shape of income. plain natural construction of language of s. 57 (iii) irresistibly leads to conclusion that to bring case within section, it is not necessary that any income should in fact have been earned as result of expenditure. From plain reading of observations made by Supreme Court in aforementioned paragraph, it is clear that proposition of law, tried to be urged on behalf of appellants, would not help appellants to take their case further, in view of fact that there is nothing on record to show that funds borrowed by appellants were utilized for earning of income. As observed by Supreme Court, it is purpose of expenditure that is relevant in determining applicability of Section 57 (iii) and that purpose must be making or earning of income. Thus, what is necessary is to show/establish that borrowing of funds was for purpose of making or earning of income irrespective of fact whether this purpose was fulfilled, in order to qualify expenditure for deduction. In short, in order to claim deduction under Section 57 (iii) of Act, it is necessary to show that funds were borrowed by assessee for purpose of investment in business, such as buying and selling of shares with purpose of earning of income. Unless this condition is satisfied, in our opinion, claim for interest is not allowable. All three Authorities in present case have recorded categoric finding of fact that appellants could not and did not produce any evidence/material to establish that funds borrowed were utilized for purpose of earning income from business of buying and selling of shares. Though appellants had ample opportunity before Authorities below, no efforts what-so-ever were made by them to place any material on record in support of their contention. Even before this Court, when we asked learned counsel for appellants whether he has any material to show that funds borrowed by appellants were for earning income from their business, in all fairness, he submitted that he does not have any such material in support of his contention. In circumstances, we find no merit in these appeals and accordingly, we answer substantial question of law in favour of Revenue and against appellants/assessee. No costs. Consequently, miscellaneous petitions, if any, also stand disposed of. _____________________ DILIP B.BHOSALE,J ________________________ A.RAMALINGESWARA RAO,J Dt:20.01.2015 kdl [1] 115 ITR 519 Naresh Kumar v. Assistant Commissioner of Income-tax in