Deduction of interest on share investment failed because no income arose under "other sources" in the relevant year.

Interest on borrowed funds used to acquire shares was not deductible under section 12(2) of the Income-tax Act, 1922, because that provision allows only expenditure incurred for earning income chargeable under the head "Income from other sources." The Court held that section 12(2) is distinct from the business deduction rule in section 10(2)(xv) and is not interchangeable with it. As no dividend or other income was actually received from the investment during the relevant year, there was nothing against which the interest could be deducted. The deduction claim was therefore disallowed.

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Issues: Whether interest paid on borrowed funds used for investment in shares is allowable as a deduction under section 12(2) of the Income-tax Act, 1922, when the investment yielded no income during the relevant previous year.

Analysis: Section 12(2) permits deduction only of expenditure incurred solely for the purpose of making or earning income chargeable under the head "Income from other sources". The Court contrasted this language with section 10(2)(xv), which allows expenditure laid out wholly and exclusively for business purposes, and held that the two provisions are not interchangeable. The allowance under section 12(2) presupposes the existence of actual income from other sources against which the expenditure can be deducted. The Court distinguished the earlier authorities relied upon by the assessee on the ground that those cases involved a return or income, whereas the present case involved no income or dividend at all during the year.

Conclusion: The interest was not deductible under section 12(2), and the question was answered in the negative.

Final Conclusion: The assessee was not entitled to claim the interest as a deduction against a year in which the investment produced no income under the head "Income from other sources".

Ratio Decidendi: Deduction under section 12(2) of the Income-tax Act, 1922, is available only where there is actual income assessable under the head "Income from other sources", and expenditure cannot be deducted when no such income exists in the relevant year.

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