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Issues:
1. Deductibility of interest amount of Rs. 2,000 payable on estate duty from property income. 2. Entitlement to deduction of interest of Rs. 3,960 under 'Business' or 'Other sources'. Analysis: The High Court of Karnataka addressed two key issues in this judgment. Firstly, the court examined the deductibility of the interest amount of Rs. 2,000 payable on estate duty from property income. The assessee, a co-widow, had obtained annual instalments for estate duty payments, with interest payable on her share. The court noted that estate duty is not an annual charge but a charge on assets under the Estate Duty Act. As such, the interest on estate duty instalments cannot be considered an annual charge eligible for deduction under section 24(1)(iv) of the Income-tax Act, 1961. The court upheld the disallowance of this deduction, emphasizing that the interest on estate duty does not fall within the scope of allowable deductions from property income. Secondly, the court examined the entitlement to a deduction of interest amounting to Rs. 3,960 under 'Business' or 'Other sources'. This interest arose from the transfer of assets and liabilities following the death of the assessee's husband, a partner in a firm. The interest was claimed against income from lease rent, seeking deduction under section 57(ii) and (iii) of the Act. However, both the Income-tax Officer and the Appellate Assistant Commissioner disallowed the claim, a decision upheld by the Tribunal. The court concurred with the Tribunal's finding that the interest payment lacked a nexus with the income from the leased property. Since the interest payment did not directly contribute to earning or making income from the property, it was deemed ineligible for deduction under section 57(iii) of the Act. In conclusion, the High Court ruled in favor of the Revenue, affirming the disallowance of both deductions sought by the assessee. The judgment highlighted the legal criteria for allowable deductions under relevant sections of the Income-tax Act and emphasized the necessity of a direct link between expenses and income generation for deduction eligibility. The court's decision rested on the absence of such a connection in both instances, leading to the denial of the claimed deductions.
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