Law: Income Tax Act, 1922

Section: 12(2)

Indian Income Tax Act, 1961 Sections 57(iii)-Income from other sources--Deductions-Dividends-Interest on money borrowed for investment in shares-Whether deductible even where no dividends are received from the shares-Held yes- Indian Income Tax Act, 1922 (XI of 1922) S. 12 (2). Section 57(iii) of the Income Tax Act, 1961, does not say that deduction of expenditure is permissible only 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 the 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 in to any benefit to the assessee by way of the return in the shape of income. Therefore, even if no profits is earned from the shares by way of dividend, the interest paid on moneys borrowed for acquisition of theses hares is allowable as an expense. Ormerods (India) P. Ltd. v. CIT [1959] 36 ITR 329 (Bom) followed, Cases referred to: Appa Rao v. CIT [1962] 46 ITR 511 (Mad). chhali Behari Lal v. CIT [1960], 39 ITR 696 (All). CIT v. Fida Hussain G. Abbasi (Dr.) [1969] 71 ITR 314(MP). Eastern Investments Ltd. v. CIT [1951] 20 ITR 1 (SC). Kameshwar Singh v. CIT 119571 32 ITR 377 (Pat). Madanlal Sohanlal v. CITU963] 47 ITR 1 (Cal). Seth Banarsi Das Gupta v. CIT [1971] 81 ITR 170 (All). JUDGMENT R. N. MISRA J.-These are two references made under section 256(1) of the Income Tax Act, 1961 (hereinafter reference to as "the Act"), by the Income Tax Appellate Tribunal on an application of the revenue and the following question has been sent for opinion of the court: "Whether, on the facts and in the circumstances of the case, the interest on monies borrowed for purchase of shares should be allowed as a deduction even though shares had not yielded any dividend in the relevant accounting year?" The relevant years of assessment are 1965-66 and 1966-67. Assessee, an individual, purchased equity shares in M/s, Kalinga Tubes Ltd. by borrowing from M/s. Kalinga Foundation Trust and the Central Government of India. During the two years, assessee had to pay interest of Rs. 29,915…

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