(1.) AT the instance of the assessee, the following question has been referred to us for our consideration by the Tribunal :
(2.) THE true scope of Section 36(1)(iii) of the Income-tax Act is required to be determined in this tax case. THE assessment years with which we are concerned are 1978-79 and 1979-80. THE assessee's grievance is that the interest paid by the assessee during these assessment years have been wrongly held to be not allowable as deduction under that provision.
(3.) SECTION 36 of the Act occurs in Chapter IV which deals with the computation of total income and it is a provision which relates to the computation of income earned under the head "Profits and gains of business or profession". The deduction contemplated by the section is in relation to the expenditure which could properly be regarded as legitimate for the purpose of the business or profession. Expenditure incurred on account of commercial expediency for the purpose of business would be allowable under this provision. The expenditure to be allowed must have a nexus with the business. If the expenditure incurred is ostensibly for the business, but in reality is not for the business such expenditure is not allowable.