Law: Income Tax Act, 1922

Section: 10, 66(1)

Income-tax - Deduction-Amount borrowed and invested in hares-No dividend received Interest paid on money borrowed-- Whether allowable-Reference-Application for reference by Commissioner-Assessee requiring reference of other questions arising out of order without separate application - Whether Tribunal justified in referring such questions raised by assessee -Indian Income-tax Act, 1922, Ss. 10 & 66(1). The assessee, a shareholder and director of a private limited company, borrowed moneys and invested the same in the shares of the said company. Though, as a director, he received salary and sitting fees, no dividend was received from the shares. In his assessment, he claimed the interest paid on his borrowals as a deduction under section 12 of the Act. Though the officer and the Appellate Assistant Commissioner negatived this claim, the Tribunal allowed the same. Held, the Tribunal was right. The interest can be allowed under section 12 of the Act. All that section 12(2) requires is that the expenditure should be incurred solely for the purpose of earning income or making profits or gains, that it is not required that it should be fruitful and that interest found to have been paid on money borrowed for investing in shares in a company is a legitimate deduction under section 12(2) of the Act. In the instant case, there is income from which the expenditure is deductible. [Their Lordships did not express any opinion about a case where there is no income.] In reply the application by the Commissioner for a reference against the order of the Tribunal, the assessee, without filing a separate application for reference, required another question of law also to be referred. Held, the said question could not have been referred to the High Court without application by the assessee under section 66(1). Commissioner of Income-tax v. Jiwaji Rao Sugar Co. Ltd. (1969) 71 I T R 319 fol. Appa Rao (K.) v. Commissioner of Income-tax (1962) 46 I T R 511 ; Chhail Behari Lal v. Commissioner of Income-tax (1960) 39 I T R 696 ; Eastern Investments Ltd. v. Commissioner of Income-tax (1951) 20 I T R 1 (S C) ; Educational and Civil List Reserve Fund No. 1 v. Commissioner of Income-tax…