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Issues:
- Deductibility of interest payment on loan for purchasing shares in a public limited company under the head "other sources." - Whether interest payment can be set off against income from ground rents received by the assessee. Analysis: The case involved the deductibility of interest payment on a loan taken to purchase shares in a public limited company under the head "other sources." The assessee borrowed a sum from a bank to buy shares but did not receive any dividend during the relevant year. The Income-tax Officer, Appellate Assistant Commissioner, and Appellate Tribunal all denied the deduction, stating that there should be income from the source to allow the deduction under section 12(2) of the Act. The Tribunal held that the interest payment could not be deducted as there was no income from the shares, emphasizing that losses must be computed for each source under the head "other sources" only if there is any income at the starting point in the computation. The Tribunal referred the question of whether the interest payment could be set off against income from ground rents assessed under the head "other sources." The Tribunal's approach was to ignore the loss from one source under "other sources" due to the absence of initial income from that source. The department argued that since no income was derived from the shares, the interest payment could not be considered as solely incurred for earning income. However, precedents such as Eastern Investments Ltd. v. Commissioner of Income-tax and Ormerods (India) Private Ltd. v. Commissioner of Income-tax supported the view that interest paid on loans for share investments could be set off against other income under section 12(2) of the Act. The court emphasized that the purpose of the expenditure, not the motive, was crucial in determining deductibility. It held that the interest payment was incurred solely for earning income from shares, even if no dividends were received. Referring to Anglo-French Textile Co. Ltd. v. Commissioner of Income-tax, the court highlighted the need to adjust receipts and outgoings under the same head of income to compute the net assessable figure. Citing Chhail Behari Lal v. Commissioner of Income-tax, the court reiterated that interest payment on borrowed sums for investing in shares was an allowable expenditure under section 12(2) regardless of dividend receipts. In conclusion, the court ruled in favor of the assessee, allowing the interest payment deduction against other income under the head "other sources." The judgment emphasized the commercial purpose behind the expenditure and the need to adjust various sources under the same head to compute assessable income accurately.
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