TMI Blog1968 (8) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee returned a net loss of Rs. 19,302 under business. In arriving at this figure, it made a deduction of Rs. 38,193 by way of interest paid to various parties on loans. This amount included a sum of Rs. 18,525 made up as follows : 1. Palghat Financing Co. (P.) Ltd. 12,148 2. Palghat Investment Corporation Ltd. 1,890 3. Narasimha Bank, Alathur 4,487 For the assessment year 1959-60, the assessee returned a net loss of Rs. 1,890 under business. The deductions made by the assessee in arriving at the above amount consisted of a sum of Rs. 17,514. This represented interest paid on loans to the following parties : 1. Palghat Financing Co. (P) Ltd. 10,080 2. Palghat Investment Corporation Ltd. 1,995 3. Narasimha Bank 3,090 4. M. N. Ramaswamy Iyer Co. Ltd. 2,349 The amounts paid as interest by the assessee to the aforesaid concerns in the two years of assessment did not relate to amounts which it borrowed for its banking or chit business, but it represented amounts invested for acquiring shares in the said concerns. The assessee however, claimed to deduct the said amounts under clauses (iii) and (xv) of section 10(2) of the Act on the ground that the investment in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dealer in shares; and purchase of shares is not obviously a part of its business. If any income arose to the assessee out of the investments on shares, it would not fall under the head "business", but only under the head "other sources". So the expenditure incurred by way of interest paid in respect of investments made for buying shares cannot be claimed as a business expenditure of the assessee. It must, therefore, follow that the first part of the questions referred to us in both these cases must be answered against the assessee. The next question for consideration is whether the claim can be allowed under section 12 of the Act. The reason for disallowing this claim is stated by the Appellate Tribunal in paragraph 25 of its order; and it reads as follows : " In our opinion, section 12 has also no application. The case relied on by the assessee's learned counsel, Appa Rao v. Commissioner of Income-tax , proceeded on the finding that the expenditure by way of payment of interest was incurred solely for the purpose of making or earning such income from the shares acquired with the amount borrowed. The only point made out by the department was that there was no income. The facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . We may mention here that beyond making this claim, no material was placed before us to show that there was a real threat to any of the businesses. The pattern of investment shows the preference to shares in which the assessee's family was interested. Except a sole purchase of a share in Nedungadi Bank Ltd., the assessee had not made any investment in any other industrial shares, or shares in other companies. Normally a banker invests in shares with a view to supplant his income but in this case it cannot be said that the purchase of these shares had been made with any such purpose. In our opinion the investment of Rs. 6,69,243 in the year ending in December 31, 1957, and Rs. 6,81,633 in the year ending December 31, 1958, was not for the purpose of business and, therefore, the interest paid on moneys corresponding to that amount cannot be allowed as a deduction ". It is, therefore, not in dispute that the sums of Rs. 18,525 and Rs. 17,514 which the assessee claimed for the assessment years 1958-59 and 1959-60 respectively represented the interest attributable to the amounts invested on shares. This is the basis on which the claim of the assessee in respect of the said amounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 10(2)(iii) of the Act, and alternatively under section 12(2). The contention that it would fall under section 10(2)(iii) was rejected by the High Court; but it allowed the claim under section 12(2). Upholding the claim, their Lordships said: " It cannot be doubted that if the assessee had earned income by way of dividend from these shares, the interest payment of Rs. 7,500 would be a proper charge on that income. So much is conceded by Mr. Ranganathan, learned counsel for the department. But then, it is pointed out that the assessee did not earn any dividend income from these shares in the relevant year, and, in fact, he had no income to be assessed under the miscellaneous head of section 12. The submission on behalf of the revenue is that the absence of any income by way of dividend or other miscellaneous income under section 12 operates as a bar against the assessee to claim the interest payment as a revenue charge. It is now a well accepted rule of income-tax law that what the statute allows as a proper allowance or expenditure, and which can be brought on the debit side of the assessee's profit and loss account to off-set his credit receipts and to compute the income, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the view taken by the High Courts of Bombay, Allahabad and Madras appeals to us as the correct one. Lord Thankerton, in his speech in the decision of the House of Lords in Hughes v. Bank of New Zealand, said: "Expenditure in the course of the trade which is unremunerative is none the less a proper deduction, if wholly and exclusively made for the purposes of the trade. It does not require the presence of a receipt on the credit side to justify the deduction of an expense." In Eastern Investments Ltd. v. Commissioner of Income-tax, the Supreme Court was dealing with a claim under section 12(2) of the Act for deduction of interest paid by the assessee on debentures; and it said: " It is not necessary to show that-the expenditure was a profitable one or that in fact any profit was earned. According to the decision of the Patna and the Calcutta High Courts, the question of allowance of the expenditure under section 12(2) of the Act does not arise, unless there is some income actually received under the head "other sources". It is this view that was pressed before us by the learned counsel for the revenue. He did not say that the position would be the same in respect of i ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
