TMI Blog1970 (3) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... t ending March 31, 1958, the assessment year being 1958-59, the assessee applied to the Tata Iron Steel Co. Ltd. to allot to the assessee 2,700 ordinary shares of the face value of Rs. 75. It appears that along with the application the assessee had to pay Rs. 30, Rs. 25 thereof being premium, The assessee paid the application money of Rs. 30, and in pursuance thereof, some time prior to November 25, 1956, acquired 2,700 ordinary shares of the above company. It appears that the assessee was liable to pay the sum of Rs. 70 by instalments of two calls of Rs. 35 each in respect of the above shares. By notice dated November 25, 1956, the assessee was called upon to pay the first call of Rs. 35 per share and he was informed that in default of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the payment of interest aggregating to Rs. 9,020 (Rs. 3,775 plus Rs. 5,245) made in the aforesaid manner the assessee was entitled to deduction under section 12(2) in connection with the source "dividend income". The case on behalf of the revenue was that the above expenditure for payment of interest was capital expenditure and in any event was not expenditure incurred solely for the purpose of earning dividend income. The Appellate Tribunal by its order dated September 20, 1962, accepted this case of the revenue. In that connection, it rejected the contentions made on behalf of the assessee by holding that the transaction which required to be examined was the contract made between the assessee and the above company which had come into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee, the allotment letter issued by the company and without the articles of association of the company being brought on record. Having regard to other facts on record and particularly the notices referred to above, it is abundantly clear that the interest was claimed from the assessee not under any contractual arrangement made between the assessee and the company nor as a result of breach of any terms agreed to between the assessee and the company. Apparently, all the observations made by the Tribunal in connection with its findings are based on conjectures relating to the contents of the documents which should have been on the record. The findings made by the Tribunal in the above manner cannot be justified and are liable to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all. Disbursement which does not go to increase the capital value of an asset, cannot ordinarily be capital expenditure. The paid up value of the above shares increased pro rata upon payment of the application money of Rs. 30 and the two calls of Rs. 35 each. That paid up value was not enhanced in respect of these shares in any manner by expenditure of the above sum of Rs. 9,020 of interest. He, therefore, submitted that the finding of the Tribunal that the expense of interest was capital expenditure was entirely unjustified. On the basis of these very facts and for the same reasons, Mr. Shah submitted that the above interest of Rs. 9,020 has been expended solely for earning dividend income. For these reasons, the findings of the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... feited the shares, the assessee would not cease to be the owner of the shares. In connection with her becoming owner of these shares as fully paid-up shares, the assessee was liable to pay nothing in addition to the application money of Rs. 30 other than Rs. 35 for the first and Rs. 35 for the second call. By the notices which we have referred to above, Rs. 35 of the first call was payable not later than December 29, 1956, and Rs. 35 for the second call was payable not later than July 1, 1957. The payment of the call money would have in the ordinary course completed the paid up value of these shares. In connection with acquisition of the ownership of these shares as fully paid-up shares, ordinarily, no further amount was payable by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue of the shares and the value of the shares to the assessee herself was the same as for all the shareholders. Now, payment of interest to the company on the amounts of the call stands on the same footing as payment of like interest on the same amount and for the same period to an outside lender from whom she borrowed the amount for payment to the company. Even Mr. Joshi did not dispute that if moneys are borrowed for investing in shares to earn dividends the interest paid on the borrowing would be deductible as expenditure from income from dividends. In these circumstances, it is not possible for us to accept Mr. Joshi's submission that the payment of Rs. 9,020 was capital expenditure. The payment must be held to have been made solel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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