Dividend income deduction requires direct nexus to earning income; litigation over personal status was too remote.

Litigation expenses are deductible from dividend income under section 12(2) of the Income-tax Act, 1922 only when they are revenue in character, actually incurred, and laid out solely for earning that income with a real nexus to its source. The provision is narrower than the general business deduction rule in section 10(2)(xv), and a remote or indirect connection is insufficient. On the stated facts, the expenses were incurred to defend the assessee's personal status as an adopted son, not to protect the investments or earn the dividends. The connection to dividend income was therefore too remote, and the expenditure was not deductible.

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Issues: Whether litigation expenses incurred in defending a suit disputing the assessee's status were deductible from dividend income under section 12(2) of the Income-tax Act, 1922.

Analysis: Deduction under section 12(2) requires that the expenditure be of a revenue character, actually incurred, and laid out solely for the purpose of making or earning the income in question. The statutory language demands a real nexus between the expenditure and the source of income, and a remote or indirect connection is insufficient. Expenditure allowable under this provision is narrower than the general business deduction language in section 10(2)(xv). On the facts, the litigation related to the assessee's personal status as an adopted son and not to the investments themselves or the actual earning of dividend income. The connection between the defence of adoption and the receipt of dividends was too remote to satisfy the statutory test.

Conclusion: The litigation expenditure was not deductible under section 12(2) of the Income-tax Act, 1922, and the answer was against the assessee.

Ratio Decidendi: Expenditure is deductible under section 12(2) only where it is incurred solely for earning the income and bears a direct or indirect nexus with the source of that income; a remote connection with a personal status dispute is insufficient.

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