Unrealised receipts and dividend income are not deductible without a specific statutory allowance or actual expenditure incurred to earn them.

Amounts earlier brought to tax could not be deducted later merely because they remained unrealised; a deduction was available only if the claim fell within the specific statutory allowance for bad debts or another recognised business deduction, and the advances were not shown to arise from any money-lending or business activity. Likewise, unrealised dividend could not be deducted under the dividend-income provision because that allowance was confined to expenditure actually incurred wholly and exclusively to earn the dividend. On both issues, the deduction claims were rejected and the reference was answered in favour of the Revenue.

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Issues: (i) whether interest amounts earlier brought to tax and subsequently not realised could be claimed as a bad debt deduction or as a business deduction; (ii) whether unrealised dividend amounts, though taxed in earlier years, were deductible under the provision governing income from dividends.

Issue (i): whether interest amounts earlier brought to tax and subsequently not realised could be claimed as a bad debt deduction or as a business deduction

Analysis: The advances were not made in the course of any money-lending business and were not connected with any business activity of the assessee. The loss of a receipt that had once been taxed did not, by itself, create a deductible item unless it fell within the statutory allowance for bad debts. No general deduction could be claimed merely because the amount had previously suffered tax.

Conclusion: The claim for deduction was not allowable and was answered against the assessee.

Issue (ii): whether unrealised dividend amounts, though taxed in earlier years, were deductible under the provision governing income from dividends

Analysis: The deduction under the dividend provision was confined to expenditure incurred solely for earning the dividend income. Mere non-realisation of dividend did not constitute such expenditure, and there was no statutory basis to allow a deduction on that ground.

Conclusion: The claim for deduction was not allowable and was answered against the assessee.

Final Conclusion: The reference was answered in favour of the Revenue, with both questions decided against the assessee.

Ratio Decidendi: A receipt that has earlier been taxed cannot be deducted in a later year merely because it remains unrealised, unless the case falls within a specific statutory deduction; and unrealised dividend is not deductible unless the statute permits an allowance for expenditure actually incurred to earn it.

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