Interest on securities: deductions under section 8 are confined to actual receipts and cannot create a negative income.

Section 8 of the Indian Income-tax Act, 1922 allowed taxation of interest on securities and permitted only limited deductions: reasonable expenses incurred in realising actual interest and interest paid on borrowed money used to invest in those securities. The text explains that these deductions are tied to the existence of real interest income and cannot be used to generate a negative income or loss by setting off borrowed-interest costs against no receipts. It also notes that the wording of section 8 differs from other charging and allowance provisions, indicating a distinct treatment of this head of income, and that the later form of section 19 of the 1961 Act was not treated as merely declaratory.

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Issues: Whether, under section 8 of the Indian Income-tax Act, 1922, expenditure exceeding the interest income from securities could be allowed so as to create a negative income or loss.

Analysis: Section 8 imposes tax on interest receivable from securities and its proviso permits deduction only of a reasonable sum expended for realising such interest and of interest payable on borrowed money used for investment in the securities. The language of the proviso links the allowance to the existence of interest income, and the deduction for realisation expenses is confined to cases where interest is actually realised. The different phraseology used in section 8, as compared with other charging heads and allowance provisions in the Act, indicates that the head 'interest on securities' was intended to operate distinctly and does not authorise the creation of a loss by setting off borrowed interest against non-existent receipts. The later form of section 19 of the Income-tax Act, 1961 was not treated as declaratory of section 8.

Conclusion: Negative income or loss could not be allowed under section 8; the question was answered in the negative and the decision was against the assessee.

Ratio Decidendi: Under section 8 of the Indian Income-tax Act, 1922, deductions for interest on borrowed funds are permissible only against actual interest income from securities and cannot create a negative income or loss.

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