TMI Blog1971 (3) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... n the facts and in the circumstances of the case, the assessee's claim to deduct the interest payable on a loan incurred for acquiring an asset no more held by it was legally maintainable ? " The connected reference concerns the same assessee and in respect of the assessment year 1961-62. The questions of law referred are : " 1. Whether, on the facts and in the circumstances of the case, the assessee's claim to deduct the interest payable on a loan incurred in acquiring an asset no more held by it was legally maintainable ? 2. Whether, on the facts and in the circumstances of the case, the legal expenditure amounting to Rs. 2,970 incurred by the assessee in defending a suit relating to an asset which was not held by the assessee durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive shares purchased from Devi Chand, and they were no longer held by the assessee, the claim to deduction could not be allowed. The assessee appealed. The Appellate Assistant Commissioner held that the assessee was following the cash basis of accounting in respect of dividends and interest on investments and, as the interest was only payable and had not yet been paid, the deduction could not be allowed. The assessee then appealed to the Income-tax Appellate Tribunal. The Tribunal accepted the contention of the assessee that it maintained its accounts on the mercantile basis and, therefore, did not agree with the ground upon which the Appellate Assistant Commissioner disallowed the claim. But it took the view that the block of 19,250 shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us year " envisages a different previous year in respect of each separate source of income. Section 4, which is concerned with the application of the Act, declares that the total income of a person includes all profits and gains, from whatever source derived, which falls within the categories set out there. And so on. The first authoritative judicial pronouncement appears in Rhodesia Metals Ltd. (Liquidator) v. Commissioner of Taxes, where the Privy Council approved of the passage quoted by Mr. Justice de Villiers from Mr. Ingram's work on Income-tax : " Source means not a legal concept but something which a practical man would regard as a real source of income ; the ascertaining of the actual source is a practical hard matter of fact." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eholding. The assessee may also, for good reason, treat the shares of the same company as constituting a number of separate and distinct shareholdings. The shares may be divided into groups defined by reference to the circumstances in which they were acquired, or to the purpose for which they were purchased, that is, some as an investment holding and others as a share dealer's stock-in-trade, or to the category or class to which they belong, for example, whether they are preference or equity. There may be other criteria reasonably defining them into separate and distinct shareholdings and, therefore, as distinct and separate sources of income. Upon the facts before us, the block of 19,250 shares was purchased by the assessee in 1951 as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure (not being in the nature of capital expenditure) incurred solely for the purpose of making or earning such income. In the case of dividend income, an allowance has also to be made for any reasonable sum paid by way of commission, or remuneration to the person realising the dividend on behalf of the assessee. It is after making such allowances that the net income proceeding from each source of income is determined. Since the allowance is in respect of expenditure for the, purpose of making or earning income, it must be incurred while there is the possibility of the income being made or earned, and that necessarily postulates the existence of the source of such income at the time when the expenditure is incurred. That being so, it i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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