Interest deduction for clubbed dividend income allowed where borrowings financed shares held by spouse and minor child.

Interest on borrowings used to acquire shares standing in the names of an assessee's wife and minor child was held deductible where the resulting dividend income was clubbed into the assessee's total income under section 64. The Court treated the includible dividend as income assessable under the head "Income from other sources" and applied the principle that expenditure incurred wholly and exclusively to earn that income is allowable under section 57(iii). The deduction was accepted to the extent the income was includible under the clubbing provision, and the reference on the wife's share income was also covered against the Revenue by prior binding precedent.

---

---

Issues: Whether interest paid on borrowings used to purchase shares standing in the names of the assessee's wife and minor child was deductible under section 57(iii) of the Income-tax Act, 1961, where the resulting dividend income was includible in the assessee's total income under section 64.

Analysis: The expenditure claimed was interest on borrowed funds used to acquire shares from which the wife's and minor child's income was brought into the assessee's total income by the clubbing provision. The Court followed earlier authority construing materially similar provisions under the Indian Income-tax Act, 1922, and treated the income so included as income assessable under the head "Income from other sources". On that footing, the borrowings were regarded as having been made for the purpose of earning that income, and the assessee's claim for deduction was allowed to the extent the income was includible under section 64. The Court also held that the reference to the wife's share income stood covered against the Revenue by prior binding precedent.

Conclusion: The interest expenditure was deductible and the questions referred were answered in favour of the assessee.

Ratio Decidendi: Where income of a spouse or minor child is included in the assessee's total income under clubbing provisions, expenditure wholly and exclusively incurred to earn that includible income is allowable as a deduction under the head "Income from other sources".

---