Capital cost of securities not deductible against interest income; only actual collection expenses may qualify.

Price paid for income-bearing securities, including the element attributable to accrued interest up to purchase, was treated as capital outlay and not deductible against interest income under the Income-tax Act, 1961. A deduction could be claimed only for reasonable expenditure incurred to realise the interest, but no such expenditure was established on the facts. The interest received on the securities was therefore taxable as income, and the claimed set-off was rejected as not allowable as deductible expenditure.

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Issues: Whether the price paid for securities, including the element attributable to interest accrued up to the date of purchase, could be treated as deductible expenditure against interest income arising from those securities under the Income-tax Act, 1961.

Analysis: The securities were purchased as income-bearing assets, and the entire price paid for them was held to be capital outlay. No part of that capital cost could be set off as expenditure against the interest subsequently accruing on the securities. Deduction was permissible only if the assessee could show reasonable expenditure incurred for realising the interest, which was not established on the facts. The interest received on the securities was therefore taxable as income.

Conclusion: The claim for deduction was rejected and the amounts were held not allowable as deductible expenditure.

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