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Issues Involved:
1. Whether the interest payment of Rs. 7,500 attributable to the holding of shares in Southern Transports Limited is a proper deduction in the assessment under any of the provisions of the Income-tax Act. Issue-wise Detailed Analysis: 1. Deduction under Section 10(2)(iii) of the Income-tax Act: The primary contention of the assessee was that the interest payment of Rs. 7,500 should be deductible under section 10(2)(iii) as it represents interest on borrowed capital used for business purposes. The assessee, a bus operator, had invested in shares of Southern Transports Ltd. and claimed that this investment was part of his business activity. However, the Income-tax Officer disallowed the interest payment, arguing that the borrowed amount used for purchasing shares was not for the purpose of the transport business. The Tribunal upheld this view, stating that the shares did not constitute an asset of the transport business and hence, the interest paid for their acquisition could not be deducted under section 10(2)(iii). The court agreed with the Tribunal, noting that the purchase of shares was more of an investment rather than a trading activity related to the transport business. Therefore, the claim for deduction under section 10(2)(iii) was not sustainable. 2. Deduction under Section 12(2) of the Income-tax Act: The alternative argument by the assessee was that the interest payment should be deductible under section 12(2) of the Act. Section 12 deals with income from other sources, and section 12(1A) specifically includes "dividends" under this head. The court observed that if the assessee had earned any dividend income from the shares, the interest payment would be a proper charge on that income. The court referred to section 12(2), which allows for the deduction of any expenditure incurred solely for the purpose of making or earning such income, provided it is not in the nature of capital expenditure. The court noted that the absence of income by way of dividend in the relevant year does not bar the assessee from claiming the interest payment as a revenue charge. The court cited the rule established in Hughes v. Bank of New Zealand, stating that un-remunerative expenditure is still deductible if made wholly and exclusively for the purposes of the trade. The court also referred to the Bombay High Court's decision in Ormerods (India) Private Ltd. v. Commissioner of Income-tax, which supported the view that interest payments on borrowed capital for purchasing shares could be set off against other income. The court disagreed with the contrary view expressed by the Patna High Court in Maharajadhiraj Sir Kameshwar Singh v. Commissioner of Income-tax, which held that the absence of income is presumptive proof that the expenses were not incurred for making or earning income. The court concluded that it is not necessary for there to be income assessable under section 12(1) before upholding the claim for expenses under section 12(2). If there is no such income, the expenses would amount to a loss that can be adjusted against other heads of income under section 24(1) in the same year. Judgment: The court answered the reference in favor of the assessee, holding that the interest payment of Rs. 7,500 attributable to the holding of shares in Southern Transports Ltd. is a proper deduction in the assessment under the provisions of the Income-tax Act. The assessee was entitled to costs from the department, with counsel's fee set at Rs. 250.
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