Interest on share-purchase borrowings remains deductible against other sources income even without dividend receipts.

Interest on borrowed funds used to purchase shares was treated as allowable expenditure under section 12(2) where the borrowing was incurred for the purpose of making or earning income from that source. The absence of dividend income from the particular shares did not by itself defeat the deduction. For computation under a single head of income, receipts and outgoings from distinct sources within that head must be adjusted against each other before arriving at the taxable income. The analysis also notes that the Tribunal erred in treating the lack of share income as decisive against allowance of the interest.

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Issues: Whether interest paid on borrowed money used for purchasing shares could be deducted against other income assessable under the head "other sources" even though no dividend income was received from those shares.

Analysis: The allowable expenditure under section 12(2) depended on whether the borrowing was incurred solely for the purpose of making or earning income from the shares. The absence of dividend income from the particular shares did not prevent the interest from being an expenditure incurred for that purpose. Where several distinct sources fall under the same head of income, the receipts and outgoings relating to those sources must be adjusted against each other before computing the income under that head. The Tribunal had erred in treating the absence of income from the shares as decisive against allowance of the interest.

Conclusion: The interest payment was allowable and could be set off against the assessee's other income under the head "other sources". The answer to the referred question was in favour of the assessee.

Ratio Decidendi: For computing income under a single head, allowable expenditure incurred for the purpose of earning income from one source may be adjusted against receipts from another source under the same head, and the absence of actual income from the particular source does not by itself defeat the allowance if the expenditure was incurred for the statutory purpose.

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