Interest on borrowed funds for share purchase remained deductible, with the resulting loss set off against other income

Interest paid on borrowed funds used to acquire shares was treated as a deductible outgoing in computing income from that source, even though no dividend was received during the relevant year. The Court accepted that the absence of credit-side income did not prevent recognition of the interest expense, and that any resulting loss could be set off against income under other heads. The assessee was therefore entitled to deduction of the interest and adjustment of the loss against other taxable income.

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Issues: Whether interest paid on money borrowed to purchase shares, from which no dividend income was received during the relevant year, could be deducted in computing taxable income and set off against income under other heads.

Analysis: The assessees borrowed money to acquire shares and paid interest on that borrowing, but received no dividend income in the relevant previous year. The Court accepted that interest on borrowed money used for investment would be allowable under section 12(2) when computing income from that source, and that if no dividend income was received, the resulting loss could be set off against income from other heads under section 24(1). The Court agreed with the view that the absence of receipt on the credit side did not prevent recognition of the deductible expenditure or the consequent loss.

Conclusion: The assessee was entitled to deduct the interest and set it off against other income, and the answer to the referred question was in the affirmative.

Final Conclusion: Interest paid on borrowed money used to acquire shares was treated as a deductible outgoing capable of being adjusted against income from other sources even when the shares yielded no income in the relevant year.

Ratio Decidendi: Where borrowed funds are used to acquire income-yielding shares, the interest paid on such borrowing may be allowed as a deduction and, if no income is received from that source, the resulting loss can be set off against income under other heads in computing taxable income.

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