TMI Blog1955 (4) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... e under section 12(2) of the Act, or (2) Whether on the facts and in the circumstances of the case the petitioner was entitled to claim the amounts of ₹ 1,648 (Rupees one thousand six hundred and forty eight) and ₹ 2,530 (Rupees two thousand five hundred and thirty) on account of interest paid on borrowing for the purposes of maintaining the income under section 12(2) of the Act. We shall confine ourselves to the facts relevant to the above questions. 3. The assessee is a lady. She held, at the material time, 10 shares of ₹ 1,000 each of C. Doctor Co. Ltd., out of a total of 150 shares. Her income for the assessment year 1949-50 (year of account being the financial year 1948-49) was computed by the Income-tax Officer as follows: 4. In the year of account, the assessee had borrowed money from C. Doctor Co. Ltd., for the purpose of meeting household expenses, purchasing jewellery and meeting advance tax payment liability. She claimed to have paid ₹ 1,648 as interest to C. Doctor Co. Ltd. on account of her borrowing from that company. She derived income from property, interest, directors' fees, dividends and share income from a firm. Her claim t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount of- (a) any personal expenses of the assessee, or (b) any interest chargeable under this Act which is payable without the taxable territories not being interest on a loan issued for public subscription before the 1st day of April, 1938, or not being interest on which tax has been paid or from which tax has been deducted under section 18, or (c) any payment which is chargeable under the head 'Salaries' if it is payable without the taxable territories and tax has not been paid thereon nor deducted therefrom under section 18. 10. It is submitted, with respect, that the only question that arises under section 12(2) of the Act is: Whether on the facts and circumstances of the case the expenditure of ₹ 1,648 and ₹ 2,530 on account of interest paid on borrowings was incurred solely for the purpose of making or earning income under section 12(2) of the Indian Income-tax Act? We accordingly refer that question to the High Court. S. P. Mehta, for the assessee Advocate-General, for the Commissioner JUDGMENT CHAGLA, C.J.--This reference raises a fairly short and simple question. The assessee for the assessment years 1949-50 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as in order that she should have money to buy the jewellery. This is clearly the purpose and obviously that purpose has no connection whatever direct or indirect with the income which she earns from her fixed deposit. The purchase of jewellery does not facilitate the earning of the income. Her fixed deposit is not affected by the fact of her purchasing the jewellery or not purchasing the jewellery. But what is rather ingeniously urged by Mr. Mehta is that the assessee had the option either of taking the money from the fixed deposit and thereby reducing the income or borrowing money and paying interest on it. Inasmuch as she exercised the option of borrowing money, she preserved the source of the income and therefore this expenditure is an allowable expenditure. Now what sub-section (2) emphasises is the purpose for which the expenditure is incurred. The Court is not concerned with the motive of the assessee and what Mr. Mehta in fact asks us to do is to probe into the motive of the assessee. It may be that the assessee's motive was to save her fixed deposit and interest accruing from it and to purchase the jewellery by means of loan borrowed from some person or other. But th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had in mind when she borrowed the money was, as we said before, to discharge her statutory obligation. Now let us see the authority cited by Mr. Mehta and see how it can put any different complexion upon the view that we have taken on the question raised in this reference. Mr. Mehta has relied on a decision of the Supreme Court reported in Eastern Investments Ltd. v. Commissioner of Income-tax, West Bengal [1951] 20 I.T.R. 1, and what he relies on are certain observations in the judgment of Mr. Justice Bose. The learned Judge enunciates certain relevant principles for determining whether a particular expenditure comes within the ambit of section 12(2) and what is relied upon by Mr. Mehta is the third principle and this is how the learned Judge puts it: It is enough to show that the money was expended 'not of necessity and with a view to direct and immediate benefit to the trade, but voluntarily and on the ground of commercial expediency, and in order indirectly to facilitate the carrying on of the business', and what is emphasised by Mr. Mehta is that Mr. Justice Bose had laid down that the payment need not directly facilitate carrying on of business; even ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts before us. It cannot be said that if she had not borrowed the money in order to pay for the jewellery or the household expenses or the advance tax, she would have lost the interest on the fixed deposit. The interest would have continued and the fixed deposit would have been maintained if she had bought no jewellery, had incurred no household expense, and had not paid advance tax. Therefore the alternatives which the learned Chief Justice was considering must be alternatives which must connect the incurring of the expenditure with the carrying on of the business. If an assessee has no option except to incur an expenditure in order to make the earning of an income possible, then undoubtedly the exercise of that option is compulsory and any expenditure incurred by reason of the exercise of that option would come within the ambit of section 12(2). But where the option has no connection with the carrying on of the business or the earning of the income and the option depends upon personal considerations or upon motives of the assessee, that expenditure cannot possibly come within the ambit of section 12(2). In our opinion therefore the Tribunal was right in the view that it took and t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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