Previously taxed receipts not deductible: shareholder advances and unrealised dividends are not allowable deductions under general principles.

Claim for Rs. 18,237 as a business bad debt was rejected because the advances and interest arose from the assessee's status as a shareholder and were not made in the course of any money lending or other business; therefore no deduction under business bad debt principles or section 10(2)(xi) applies. Claim for Rs. 26,800 as unrealised dividends was rejected because non receipt of a dividend does not constitute expenditure incurred for earning dividend income and there is no general provision permitting deduction of an item previously brought to tax merely because it later became unrealised; outcome adverse to the taxpayer.

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Issues: (i) Whether Rs. 18,237 is deductible as a bad debt or otherwise under section 10(2)(xi) / general principles in computing business income; (ii) Whether Rs. 26,800 representing unrealised dividends already taxed in earlier years is deductible under section 12(2) or on general principles.

Issue (i): Whether Rs. 18,237 representing interest on advances to a company is deductible as a business bad debt under section 10(2)(xi) or on general principles of computing business income.

Analysis: The advances and interest were found to arise from the assessee's relationship as a shareholder and were not connected with any money-lending business or other business activity of the assessee; the advances were not made in the course of or incidental to any business of the assessee. There is no statutory provision permitting deduction of an income previously brought to tax merely because it is subsequently lost, except where the loss falls within the express ambit of section 10(2)(xi).

Conclusion: Not deductible; issue answered against the assessee.

Issue (ii): Whether Rs. 26,800 being unrealised dividends previously taxed is deductible under section 12(2) or on equitable grounds.

Analysis: Section 12(2) permits deduction of expenditure incurred solely for the purpose of earning dividend income; non-receipt of a dividend does not amount to expenditure incurred in earning it. There is no provision allowing deduction of an item which had been taxed in earlier years simply because it was later unrealised, absent applicability of a specific deduction provision.

Conclusion: Not deductible; issue answered against the assessee.

Final Conclusion: Both claims for deduction are rejected and the reference questions are answered in the negative, resulting in an outcome favourable to the revenue.

Ratio Decidendi: A receipt previously brought to tax cannot be claimed as a deductible loss in a subsequent year unless the loss falls within an express statutory provision (e.g., section 10(2)(xi)); non-receipt of a dividend is not expenditure deductible under section 12(2).

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