The proviso to section 8 of the Indian Income-tax Act, 1922, does not allow for a negative income or loss under the head "interest on securities".

( 1 ) THIS is a reference under section 66 (1)of the Indian Income-tax Act, 1922 (to be REFERRED TO as the Act)made by the Appellate Tribunal, of the following question :-" Whether m the circumstances of the case, expenditure in excessof income (i. e. negative income) could be allowed under section 8 ?"on 23/05/1949, the assessee purchased debentures of a company, called Messrs Malwa Vanaspati and Chemical Ltd. , Indore, fora sum of Rs. 7,00,000. 00. The price of the debentures was paid by the assesseepartly from the funds available with him and partly from a loan in thesum of Rs. 4,90,000. 00 taken by him from the Bank of Bikaner, Bombay. For the assessment years 1953-54, and 1954-55 to which this reference relates, the assessee received no interest on the aforesaid debentures. He however, paid interest to the Bank of Bikaner on the money which had been borrowed by him for purchasing them. It appears that the assesseederived income from some other debentures. During the assessment year 1953-54 the total income from debentures was shown as Rs. 2,130. 00 and against that interest and expences claimed were shown to be Rs. 20,629. 00. Similarly, for the assessment year 1954-55 a sum of Rs. 5048. 00 was shown as income from debentures and against that a sum of Rs. 17. 026. 00 was claimed on account interest and expenses. Thus, for the year 1953-54 loss (negative income) was claimed amounting to Rs. 18,490. 00. and forthe subsequent year this figure was shown at Rs. 11,980. 00. The Income-tax Officer disallowed these items. The Appellate Assessment Commissioner allowed the deductions claimed by the assessee for these years and also for certain other years )the total period being of five years ). The Department filed appeals before the Appellate Tribunal. By a common orderdated 28/10/1961, the Tribunal set aside the decision of theappellate Assessment Commissioner and upheld the order of the Income-tax Officer. Subsequently, there was some settlement between the assesseeand the Department, and no dispute was left with regard to the assessment years 1950-51, 1951-52 and 1952-53. But for the two subsequentyears, there was no settlement and since no deduction had been allowedto the assessee as claimed by him for those years, he moved thetribunal for referring the question, mentioned above.

( 2 ) THE Appellate Tribunal examined the language of section 8 ofthe Act, which, indisputably, is applicable in this case, pointing out the unhappy wording employed in the first proviso to that section. A distinction was made between the words "no tax is payable" and "deductionsor allowances" as employed in other sections of the Act, and it was heldthat no negative income or los could arise under the head "interest onsecurities" under section 8.

( 3 ) OUR attention has been invited by the learned counsel for the assessee to various provisions of the Act, some of which may be mentioned. Under section 3 income-tax is charged for any years in respect of thetotal income of the previous years. According to section 2 (15) "total incomemeans total amount of income, profns and gains computed in the mannetlaid down in the Act. Section 6 gives the "heads of income chargeableto income-tax. " These are-

" (I) Salaries. (ii) Interest on securities. (iii) Income from property. (iv) Profits and gains of business, profession or vocation. (v) Income from other sources. (vi) Capital gains. ". Section 7 deals with the first head "salaries," and Section 8 with

" Whether in the circumstances of the case, expenditure in excessof income (i. e. negative income) could be allowed under section 8 ?"assessee can deduct or claim as an allowance the amount of interest which he pays to the creditor on the borrowed money under the head interest on securities", so as to be able to claim a set-off under section

( 4 ) F the income is negative and more in the nature of a loss, as in the present case. On behalf of the Dapartment, the contention was and isthat section 8 is worde