TaxTMI 
TaxTMI 
1962 (8) TMI 78
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.... 3. For the aforesaid year, the assessee paid Rs. 21,048 as interest on borrowings which amounted to in all Rs. 2,15,154 as at the close of the year, the whole of which he claimed as a deduction in the aforesaid assessment. The Income-tax Officer, considering the proportion of the investment in Southern Transports Limited to the total borrowings, estimated the interest relating to the aforesaid investments at Rs. 7,500 which he disallowed in the assessment on the ground that the amount invested in the company cannot be said to have been utilised in the business carried on by the assessee. In this assessment, there was no income assessed under section 12. 4. The assessee appealed to the Appellate Assistant Commissioner. In this appeal, the assessee did not challenge the quantum of the estimate. The Appellate Assistant Commissioner allowed this contention in paragraph 14 of his order which is reproduced below: "14. Item (v). Disallowance of interest of Rs. 7,500.--The appellant had invested a sum of Rs. 65,000 in shares of the Southern Transports Limited. A portion of his borrowings was utilised in ....
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.... The assessee, who is an individual, is carrying on business as a bus operator. He acquired shares of the value of Rs. 65,000 of a limited company called Southern Transports Ltd., Kilakarai, during the year ended 30th June, 1956. He also lent money during that year to the same company to the tune of about Rs. 35,552. He borrowed in the course of that year, from various persons, in all, a sum of Rs. 2,15,154. It is not in dispute that a portion of that borrowing was utilised for the purchase of the shares of the Southern Transports Ltd. For the assessment year 1957-58, relevant to the previous year ended on 30th June, 1956, he claimed deduction, in the computation of his business income, of a sum of Rs. 21,048, representing interest paid by him on the total borrowing of Rs. 2,15,154. The Income- tax Officer, who dealt with his assessment, estimated the interest relating to the borrowed amount utilised for the purchase of shares at Rs. 7,500 and disallowed it on the ground that the amount borrowed for purchase of shares was not for the purpose of the transport business. The assessee had only two heads of income under section 6 of the Act, business and property. He had no income to b....
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....n the Southern Transports Ltd. is a proper deduction in the assessment under any of the provisions of the Income-tax Act?" The main contention of the assessee is that the sum of Rs. 7,500 represents interest on borrowed capital falling under section 10(2)(iii) of the Act and is properly deductible in the computation of his business income. First, we have to determine the question whether the purchase of shares by the assessee in the Southern Transports Ltd. was part of his business activity as a transport operator. He was, of course, not a dealer in shares; he was not buying and selling shares. If it was within the scope of his transport business to acquire or purchase shares of limited companies, the purchase of shares of Southern Transports Ltd. would be part of that trading activity and it would be immaterial whether or not he was doing business in shares apart from the transport business. A transport operator cannot be said to act within the range of his business as such, if he were to acquire or purchase shares in a film-producing company or a textile manufacturing company. The very fact that the two things, the transport business and the purchase of shares, are remote from....
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...." Certain expenses are excluded from the allowances and they are the subject-matter of the proviso. Personal expenses of the assessee, interest chargeable under the Act which is payable without the taxable territories, and payment which is chargeable under the head "Salaries", if it is payable without the taxable territory, are specifically excluded. One of the essential conditions justifying the claim for allowances under section 12(2) is that the expenditure should not be in the nature of a capital expenditure and should have been incurred "solely for the purpose of making or earning such income, profits or gains". The language of this section can be compared to that of section 10(2)(xv). That section reads: "Any expenditure (not being an allowance of the nature described in any of the clauses (i) to (xiv) inclusive, and not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of such business, profession or vocation." We must observe that there is great similarity between these two provisions, sectio....
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....ember, 1948. During the accounting years relevant to the assessment years 1949-50 and 1950-51, the assessee paid the sum of Rs. 1,69,085 and Rs. 2,04,333 as interest on borrowed capital for the purchase of shares. There was no income at all from these shares in those years. The assessee claimed to set off these payments of interest against its other income in these years. On a reference under section 66(1) of the Act, the High Court held that the interest payment should be set off against the assessee's other income under section 24(1) of the Act. In taking that view, the learned judges differed from the decision of the Patna High Court in Maharajadhiraj Sir Kameshwar Singh v. Commissioner of Income-tax*. The Allahabad High Court followed the Bombay view in Chhail Beharilal v. Commissioner of Income-tax. The facts in that case were as follows: The assessees, who were partners in a firm, borrowed Rs. 2,50,000 each for the firm and purchased shares in a company. During the relevant accounting year, they did not receive any dividends but each had to pay the sum of Rs. 6,688 as interest on the money borrowed. The assessees claimed that the amount so paid by each of them was e....
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.... "It is not necessary to show that the expenditure was a profitable one: or that in fact any profit was earned." It is obvious that the Supreme Court accepted as a sound rule of law that an expenditure need not result in any income as a condition or test of its deductibility under the Act. The contrary view expressed by the Patna High Court in Maharajadhiraj Sir Kameshwar Singh v. Commissioner of Income-tax** may now be examined. The assessee had acquired certain shares in a company, which he treated as an investment. He made a contribution to the trustees for debenture holders in the company for the expenses of litigation against the U.P. Government, who revoked their undertaking to purchase the company, as a going concern and pressed for its winding up. The assessee claimed that the contribution was for the purpose of safeguarding his interest in the shares of the company. The department and the Tribunal did not allow the expenditure on the ground that the company had ceased to pay dividends. The assessee also claimed deduction under section 12(2) of interest paid on overdrafts obtained for payment of income-....