9911796707
TMI Blog1970 (3) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... ication 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 payment of the sum of Rs. 35 of the call before December 29, 1956, interest at the rate of 6 per cent. per annum would be charged from the due date to the date of actual payment. In fact, the assessee defaulted in making payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alf 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 existence upon allotment of the 2,700 shares of the company to the assessee. The demand made by the company for payment of interest on arrears of calls and the notice of forfeiture was in accordance with the contract terms. The obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undantly 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 be set aside for that one reason alone. Mr. Shah for the assessee has contended that the assessee became owner of the above 2,700 shares upon the shares being allotted to the assessee by the allotment letters issued by the company even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 were wrong and the question raised in this reference should be answered in favour of the assessee. Mr. Joshi, for the revenue, has submitted that the above sum of Rs. 9,020 had been expended towards acquiring the source of dividend inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 assessee to the company. Apparently, the liability to pay interest in respect of the call money for the first time arose by the two notices respectively dated November 25, 1956, and May 1, 1957. Interest was not to be charged until the due dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 solely for the purpose of earning dividend income.
In the result, the question in this reference is answered in the affirmative. The Commissioner will pay costs.
Question answered in the affirmative. X X X X Extracts X X X X X X X X Extracts X X X X
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