Interest payment or sums borrowed for purpose of investing in shares are allowable item of expenditure.

During the calendar year 1949 relevant to the assessment year 1950-51, the assessee borrowed a sum of Rs. One lakh from’ a bank and purchased shares in a public limited company. He paid a sum of Rs. 6,543 towards interest on the loan during the year of account. During that year he derived no dividend from the shares in that company or any other shares owned by him. He had however, other income which was assessable and was in fact assessed under the head ‘Other Sources’ ; and he claimed that the interest payment should be deducted from the income from other sources before the assessable income under that head could be computed. The Income-tax Officer refused this relief on the ground:

“ It is gathered at the time of hearing that die assessee borrowed more than a lakh of rupees from this bank for investing in shares in Subhodaya Publications, a limited concern. No income is -derived from this company so far.

This interest payment cannot therefore be allowed under ‘Business’ as the borrowed money was not utilised for business purposes.”

The Appellate Assistant Commissioner also held against the assessee on the ground that for the allowance to fall within the scope of section 12 (2) of the Act, there should be some income from that source.

Virtually, the same argument was adopted by the Appellate Tribunal in the appeal. The Tribunal observed:

“ For purposes of section 12 (2) the outlay to be considered is with reference to each source and not merely to the head of income. So long as there is no income from the shares which is the source in question, the interest referable thereto cannot constitute a proper deduction in the assessment. There can be no two opinions about Mr. Viswanatha Iyer’s argument that the ultimate result can conceivably be a loss but such a loss must be computed for each source under the head ‘Other Sources’ which is obligatory only if there is any income at the starting point in the computation”

Under section 68 (1) of the Act, the Tribunal referred the following question:

“ Whether the interest payment of Rs. 6,543, can be set off against the income from ground rent received by the assessee and assessed under the head ‘Other Sources.‘?”

It is conceded that the assessee has several heads of income and one of such heads is income from other sources. Under this head “ Other Sources” are several subheads such as share income, income by way of ground rents from properties and the like. It is not also disputed by the learned counsel for the Department that in computing the income under each of the heads specified under section 6 of the Act, the different incomes relating to the several activities that would fall under the same head have to be taken. But what the Tribunal has thought fit to do in this case is to ignore a loss that occurred in respect of one of the many sources which fall under this head of income on the ground that there was no income to start with from which the interest payment could be deducted. The question accordingly is whether this is the proper method of approach in computing the income under the head ‘Other sources ‘. It has to be noticed that if there had been any income from these shares the Tribunal apparently thought that the interest payment could be adjusted against such dividend income.

It is not disputed by the Department that the expenditure by way of payment of the interest was incurred solely for the purpose of making or earning such income, profits or gains from the shares acquired with the amount borrowed. What the learned counsel for the Department suggests is that the investment in shares is only a potential source and that if no income is actually derived from those shares, the expenditure could not be said to have been incurred solely for the purpose of making or earning such income, profits or gains. A case though not directly in point has been relied upon by the Department and that is a Kameshwar Singh v. Commissioner of Income-tax1. In that case, the assessee acq