Judgment :- RAJAGOPALAN J. It was common ground that from time to time the assessee-company borrowed capital for its business, and that in the year of account ending with March 31, 1952, it paid Rs. 10, 475 as interest on those loans. Neither the genuineness of the loans nor that of the payment of interest thereon was ever in issue. The question was whether the whole of that payment towards interest was an allowable deduction under section 10(2)(iii) of the Income-tax Act. It was equally common ground that from 1943 onwards the assessee-firm financed Sungo Limited, whose line of business was that of share-brokers. The directors of the two firms were the same. Up to March 31, 1956, the assessee-company charged and collected interest on the advances to Sungo Limited, and the interest collections were included in computing the business income of the assesses. On the ground that Sungo Limited was financially embarrassed, no interest was charged on the outstanding advanced during the account years 1950-51 and 1951-52. Apparently, Sungo Limited was not the only firm to which the assessee lent moneys from out of its cash, which included amounts the assessee had borrowed. In paragraph 11 of the statement of the case, the Tribunal recorded that during the account year 1951-52 the assessee realised Rs. 8, 045 from its debtors to whom it has advanced loans. That was exclusive of what Sungo Limited could have been called upon to pay but which it was not called upon to pay as interest. Though the assessee borrowed moneys, the advances it made to others, including Sungo Limited, were obviously in the course of the assessee's business. If during 1951-52 Sungo Limited had been charged interest on the outstanding advances, as had been done in the past---it was estimated by the Income-tax Officer at Rs. 5, 000---obviously, that sum with Rs. 8, 045 collected from the other debtors as interest by the assessee would have exceeded what the assessee-company paid its creditors, Rs. 10, 475. We are referring to this aspect only to emphasise that advances to Sungo Limited and to others also were in the ordinary course of the business of the assessee, though it was by no means a money-lending business.The assessee lent moneys to Sungo Limited from 1943 onwards. 10, 475. We are referring to this aspect only to emphasise that advances to Sungo Limited and to others also were in the ordinary course of the business of the assessee, though it was by no means a money-lending business.The assessee lent moneys to Sungo Limited from 1943 onwards. On April 1, 1951, at the commencement of the year of account with which we are now concerned, Sungo Limited owed the assessee firm Rs. 1, 08, 112-9-3. There were three further advances during the year, Rs. 4, 000 and Rs. 5, 000 in April, 1951, and Rs. 7, 000 in November, 1951. There were several repayments during the year, and the accounts showed that at the end of the year on March 31, 1952, the debt due to the assessee-firm from Sungo Limited was Rs.97, 078-9-3. Thus, the position was that the bulk of the loans on which the assessee failed to charge any interest in the year of account had been advanced to Sungo Limited before 1951-52. What section 10(2)(iii) of the Income-tax Act requires is that the assessee must have borrowed for the purposes of his business. To decide whether the advances the assessee-firm made from its funds to Sungo Limited were in the course of the business of the assessee, what is relevant is the circumstances under which the advances were made, and not the circumstances under which interest was not charged or collected even though borrowed capital had been utilised to advance loans to Sungo Limited. We have pointed out that the advances were made to Sungo Limited among others from 1943 in the normal course of the assessee's business. When these advances were made, there was a contractual liability imposed on Sungo Limited to pay interest. If what happened in 1951-52 is any indication the interest the assessee could collect from its debtors could be more than what it had to pay its creditors. If the debt of over a lakh of rupees due from Sungo Limited, at the commencement of this year, consisted of advances made from time to time in the normal course of the business activities of the assessee, they do not cease to be such merely because in the year of account 1951-52 the assessee decided not to enforce the liability to pay interest. Merely on the ground that no interest was charged on the further advance of Rs. Merely on the ground that no interest was charged on the further advance of Rs. 16, 000 made during 1951-52, they did not become any different from the earlier transaction. They were also advances in the course of the business of the assessee.How the borrowed capital was used by the assessee is certainly relevant in deciding whether the requirements of section 10(2)(iii) of the Act were satisfied, and whether the amounts were borrowed by the assessee for the purposes of its business. The assessee was not shown to have borrowed any specified sum at any time for the express purpose of advancing to Sungo Limited or to any other debtor. What was borrowed by the assessee was mixed up with its general funds, from out of which the assessee advanced loans to others. We have pointed out that such advances to Sungo Limited among others were made in the normal course of the business activities of the assessee-firm. That the assessee subsequently waived interest from one of its debtors, Sungo Limited, could not alter the nature of the original advances to that debtor. Certainly it could not alter the nature of the loans borrowed by the assessee. That would be the position even if the subsequent waiver of interest was not wholly due to business considerations---the considerations of the assessee's business. If the loans had been borrowed for the business purposes of the assessee, and the advances were also made by the assessee in the normal course of its business, the requirements of section 10(2)(iii) Of the Act were satisfied. The subsequent waiver of interest in 1951-52 would not be retroactive and affect the purpose for which the assessee had contracted the loans on which the assessee was liable to pay interest and did pay interest in the year of account. This aspect seems to have been really ignored by the Tribunal. Learned counsel for the department urged that the assessee was not entitled to deduct from its assessable income interest that had accrued due to it, but which the assessee had waived, especially if the waiver was not based on business considerations. Such a contention is not open to the department at this stage. It does not arise on the order of the Appellate Tribunal. Such a contention is not open to the department at this stage. It does not arise on the order of the Appellate Tribunal. What the Tribunal considered and what we have to consider is whether any portion of what the assessee paid to its creditors as interest in the year of account failed to satisfy the requirements of section 10(2)(iii) of the Act, and not whether what the assessee waived from one of its debtors should be computed as income which had accrued to the assessee and was taxable on that basis. We say nothing on the questions whether any income accrued to the assessee in the year of account and whether such income escaped assessment. Even if accrued income had been waived, that did not justify the deduction from the interest charges incurred by the assessee which satisfied the requirements of section 10(2)(iii) of the Act.As the loans had been borrowed by the assessee for its business purposes---they were treated so all along even by the department up to the assessment year---and as the assesses only discharged its contractual liability to pay interest on those loans, the payment of Rs. 10, 475 in the year of account satisfied the requirements of section 10(2)(iii) of the Act. The assessee was entitled to deduct the whole of that amount from its assessable income. We answer the question in the negative and in favour of the assessee. The assessee will be entitled to the costs of this reference. Counsel's fee Rs. 250.