The main legal point established in the judgment is that for a deduction under s. 57(iii) of the Income Tax Act, the expenditure must be incurred wholly and exclusively for the purpose of making or earning the income.

Puttaswamy, J.—The Karnataka Forest Plantations Corporation Limited, a wholly owned company of Govt. of Karnataka, which is the common petitioner before me is, inter alia, engaged in the business of developing land for raising forest plantations like eucalyptus, bamboo, tropical pipes, rubber, cashewnut, cocoa and other varieties in the State. For carrying on its business operations, the petitioner borrows large amounts from the Govt. of Karnataka and banks from time to time and those amounts that are not immediately required for carrying on its business operations, as a matter of prudent business proposition and necessity, are invested in the same or other banks in current account and short-term deposits from which it earns interest at lower rates which receipts have given rise to these proceedings under the I.T. Act, 1961 (Central Act 43 of 1961) ("the Act").

2. For the assessment years 1976-77 and 1977-78 relevant to the accounting years ending on March 31, 1976, and March 31, 1977, respectively, the petitioner earned a sum of Rs. 27,344 and Rs. 45,369 as interest on the short-term deposits made by it from out of the amounts borrowed, though it did not make profits in its business operations but sustained losses for those years. In the returns filed under the Act for the said years before the ITO, Company Circle-IV, Bangalore (ITO), the petitioner disclosed the said receipts on which the ITO by his assessment orders dated July 12, 1977, and January 10, 1978, for the assessment years 1976-77 and 1977-78 (exhibits C and C1), respectively, allowing a deduction of 10 per cent. as expenditure has brought the said amounts to tax under the Act. Without challenging those assessments in appeals, the petitioner moved the Commissioner of Income Tax, Karnataka, Bangalore (Commissioner), under s. 264 of the Act in Revision Petitions Nos. 139 and 140 of 1978, for relief, who on February 24, 1979 (exhibit-E), has dismissed them. In these petitions under article 226 of the Constitution, the petitioner has challenged the order of the Commissioner.

3. The respondents have resisted the writ petitions.

4. Sri. G. Sarangan, learned counsel for the petitioner, has contended that the interest earned by his client from out of the short-term deposits of the amounts borrowed from banks was expenditure laid out or expended wholly and exclusively for the purpose of making or earning such income and was, therefore, an allowable expenditure under s. 57(iii) of the Act.

5. Sri K. Srinivasan, learned senior standing counsel for the Income Tax Department appearing for the respondents, in justifying the impugned order, has urged that this court should decline to exercise its extraordinary jurisdiction on the ground that the petitioner had not challenged similar assessments for the previous and subsequent years and had even agreed to the order made by the ITO for the assessment year 1977-78. In the very nature of things, it is necessary to examine this later contention of Sri Srinivasan first and then the merits if it becomes necessary.

6. In these cases, the petitioner has only challenged the assessments made for the assessment years 1976-77 and 1977-78 and not the assessments for the previous or subsequent years. I will, however, assume that the petitioner had not challenged similar assessments for the previous or subsequent years in any legal proceedings and they had become final also. But, as is well known, every assessment year is a separate and distinct proceeding and its validity or invalidity does not depend on the validity or the invalidity of the proceedings for the previous or subsequent years. Even assuming that the petitioner had not challenged similar assessments for the previous and subsequent years, that does not in any way affect the challenge made by it for the assessment years in dispute. In this view, the claim of the petitioner for the assessment years in dispute has to be examined and decided on its own merits, without reference