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Issues:
1. Deductibility of interest paid on borrowings utilized in purchasing shares in the names of wife and minor child. 2. Interpretation of section 64 of the Income-tax Act, 1961 regarding adjustment of losses. 3. Inclusion of wife's share of income from certain firms in the assessment of the assessee. Analysis: Issue 1: The case involved determining the deductibility of interest paid on borrowings utilized by the assessee to purchase shares in the names of his wife and minor child. The assessee claimed these amounts as deductions under section 57(iii) of the Income-tax Act, 1961. The Income-tax Officer disallowed the claim, stating there was no corresponding source of income. The Appellate Assistant Commissioner allowed a deduction for interest on amounts invested in the assessee's name but only allowed deduction against the dividend income received by the wife and minor son for shares purchased in their names. The Tribunal upheld this decision, leading to a challenge before the High Court. Issue 2: The interpretation of section 64 of the Income-tax Act, 1961 was crucial in this case. The assessee argued that the income earned by the wife and minor son from dividends on shares purchased in their names should be included in his income under section 64(iii). Section 64(1) includes income arising directly or indirectly to the spouse or minor child of an individual from assets transferred to them. The High Court referred to a previous Division Bench decision which clarified that income included in the assessee's income would be taxable under the head "Income from other sources." The Court found the principles from this decision applicable to the present case. Issue 3: The third issue involved the inclusion of the wife's share of income from certain firms in the assessment of the assessee. The Court noted that this issue was covered in favor of the assessee by a previous decision. The Court also referred to the provisions of section 57 and section 64 of the Income-tax Act, 1961 to analyze the inclusion of income from assets transferred to the spouse or minor child. The Court upheld the decision in favor of the assessee, emphasizing the principles established in the previous Division Bench judgment. In conclusion, the High Court answered all three questions in favor of the assessee, affirming the deductibility of interest paid on borrowings for purchasing shares in the names of the wife and minor child. The Court relied on previous judgments and interpretations of relevant sections of the Income-tax Act, 1961 to reach its decision. The Commissioner was directed to pay the costs of the reference to the assessee.
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