COMMISSIONER OF INCOME-TAX, LUCKNOW vs BAZPUR CO-OPERATIVE SUGAR FACTORY LTD.

The Supreme Court held that under Section 36(1)(iii) of the Income Tax Act, 1961, a deduction for interest on capital borrowed for business purposes is only permissible if there exists a genuine borrower-lender relationship. The Court found that the deposits made by members of a cooperative society did not constitute loans, as there was no intention to treat them as such. Consequently, the Court reversed the High Court's decision, ruling in favor of the Revenue and disallowing the deduction claimed by the society.