TMI Blog1958 (10) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... . The assessee purchased a block of shares in Gannon Dunkerley Co. Ltd., Bombay, for a sum of about ₹ 52,25,000 during the accounting year ending with November 30, 1948. These shares were pledged with the Empire of India Life Assurance Co. Ltd., and the assessee had taken a loan of about ₹ 36 lakhs from the insurance company. Besides this loan, which was secured against those shares, there were other sundry creditors and unsecured loans amounting to ₹ 13 lakhs. The paid up capital of the company is only ₹ 5 lakhs. The total assets shown in the balance-sheet are about ₹ 64 lakhs and include a block of shares in Gannon Dunkerley Co. Ltd. of the value of ₹ 52 lakhs. In the previous year relevant to the assessment years 1949-50 and 1950-51, the assessee paid a sum of ₹ 1,69,085 and ₹ 2,04,333 respectively as interest on capital borrowed. There was no income from the shares in Gannon Dunkerley Co. Ltd. in the two years under reference. The Income-tax Officer observed in the assessment order for the assessment year 1949-50: I, therefore, come to the conclusion that the investments made by Ormerods (India) Ltd. is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oldings in shares. If there is no income, the interest paid on borrowings should be treated as loss and set off against other heads of income under section 24(1) of the Act. The Tribunal, however, took the view that as the investment in shares was capital investment, there could be no question of ascertaining a minus income from that source. Dividend income is assessable under section 12. If there is no dividend income, section 12 does not come into play. 5. The point in issue is of considerable importance to the Department. If the assessee's contention was to be accepted, it would mean that there is no material difference in the computation of income from shares held as an investment or a stock-in-trade. 6. The question of law which arises is: Whether on the facts and in the circumstances of the case interest paid on moneys borrowed for the purchase of shares in Gannon Dunkerley Co. Ltd., which did not yield any dividend income, could be set off against other income under section 24(1) of the Income-tax Act? 7. The assessee accepts the statement of the case, but says that paragraph 5 should be deleted. The departmental representative, on the other ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me in respect of the relevant assessment years. The Income-tax Officer dismissed the claim observing as under: I, therefore, come to the conclusion that the investments made by Ormerods (India) Ltd. is not for a proper business consideration nor for sound investment consideration. This is purely a transaction in which the company, acquiesced in the personal financial transaction of the Gupta and Morarka Families. I, therefore, disallow the interest paid on these overdrafts in the computation of profits. The Appellate Assistant Commissioner also took the same view and the assessee carried the matter in appeal to the Tribunal. The Tribunal held that the investment by the assessee in the shares of Gannon Dunkerley Co. Ltd. was not a business venture. On a fair reading of the statement of the case and the order of the Tribunal, it is clear to us that the Tribunal has treated this purchase by the assessee company as investment by the assessee in the shares of Gannon Dunkerley Co. Ltd. It rejected the claim of the assessee for set off on the ground which we may set out in the words used by the Tribunal itself: In other words the total in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me. The question which we have to determine on this reference is: Whether on the facts and in the circumstances of the case interest paid on moneys borrowed for the purchase of shares in Gannon Dunkerley Co. Ltd. which did not yield any dividend income, could be set off against other income under section 24(1) of the Income-tax Act? At the very outset of his argument, Mr. Palkhivala, learned counsel for the assessee, stated that he did not intend to rely on any argument founded on the application of section 10(2)(iii). He has relied primarily on the right to set-off enunciated and laid down in section 24(1) and the provisions of section 12(2). The relevant part of these section is as under: 24. (1) Where any assessee sustains a loss of profits or gains in any year under any of the heads mentioned in section 6, he shall be entitled to have the amount of the loss set off against his income, profits or gains under any other head in that year. 12. (2) Such income, profits and gains shall be computed after making allowance for any expenditure (not being in the nature of capital expenditure) incurred solely for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction is permissible when any income has been earned or profits or gains made. All that it speaks of is that the expenditure must have been laid out solely for the purpose of earning income. There is nothing in the language of the section to suggest that the purpose needs to be fulfilled nor is it necessary that the purpose should fructify into any benefit to the assessee by way of return in the shape of income. There is considerable force in the argument presented on behalf of the assessee. On the other hand, it has been urged before us by Mr. G.N. Joshi, learned counsel for the Revenue, that the vital question for the court under section 12(2) is: For what purpose were these moneys borrowed? That, it was said was a question of fact. So far we are in agreement with Mr. Joshi. Then, Mr. Joshi says that there are findings of fact of the Tribunal which are conclusive and decisive of the whole matter. Counsel has relied on the following words to be found in the order of the Tribunal: We are satisfied that these shares do not seem to have been purchased with a view to trade in them. We have already mentioned that Mr. Palkhivala has not argued his case unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the Tribunal has recorded is that the shares were not purchased with a view to trading in them. Incidentally, we may mention that the Income-tax Officer had observed that the investments were not for a proper business consideration nor for any sound investment consideration . But we are concerned with the finding of the Tribunal and not what the Income-tax Officer may have said. There is, therefore, in our view, no finding by the Tribunal that these shares were not purchased solely for the purpose of making or earning income, profits or gains. Now the Tribunal has found that these purchases were investments of the assessee company. On the facts of the case and the finding recorded by the Tribunal the only possible conclusion that we can reach is that these investments were made for the purpose of earning income or dividends or for making profits or gains. In our opinion, the Tribunal has mixed up the concept of the purpose of the purchase of these shares by the company and what in its judgment was the motive for the purchase of the shares. It follows from the order of the Tribunal, part of which we have already set out, that the Tribunal took the view that the assessee was enti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such interest. At page 389 of the report, it is mentioned that the Appellate Assistant Commissioner had found that the assessee had paid the call moneys on shares in companies which were new and which had not declared dividends and as such there was no income to the assessee whatever from those sources and, therefore, if there was no such income that had inseparable connection with the interest payment, no deduction for interest was permissible. The question, it seems, was not argued before the Tribunal in that case. All that the Tribunal did was that in its statement of the case it mentioned the facts as they emerged from the findings of the Income-tax Officer. All that the judgment of the High Court states is that the decision of the Tribunal on this question is correct and the Income-tax Officer had rightly disallowed the deduction. We have often said in this court that in dealing with an enactment of all India importance and particularly the Indian Income-tax Act, we would, as far as possible, prefer to take the same view that may have been taken by any other High Court on the interpretation of any section in that enactment. But with respect we are unable to agree with the c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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