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1968 (12) TMI 28 - HC - Income TaxBad debts - claim for deduction - held that an income which suffers tax in an earlier year, if it is lost to the assessee in a subsequent year cannot be claimed as a deduction in the subsequent year
Issues:
1. Deduction under section 10(2)(xi) for interest on advances made to a company. 2. Eligibility for deduction under section 12(2) for unrealized dividends taxed in earlier years. Analysis: The judgment addressed two main issues raised in the reference under section 66(1) of the Indian Income-tax Act. The first issue pertained to whether a sum of Rs. 18,237 was liable to be allowed as a deduction under section 10(2)(xi). The assessee, a shareholder and director of a company, had made advances to the company and claimed the interest on those advances as a deduction. However, the court found that the advances were not related to any money-lending business of the assessee and were not incidental to his business activities. As a result, the deduction under section 10(2)(xi) was disallowed. The second issue involved the eligibility for deduction under section 12(2) of a sum of Rs. 26,800 representing unrealized dividends taxed in earlier years. The assessee argued that since the dividend amount had already borne tax in previous years and was not realized, it should be allowed as a deduction under section 12(2) or on general principles of equity. However, the court held that the non-receipt of dividend income does not constitute an expenditure incurred in earning it, and therefore, it is not deductible under section 12(2). In conclusion, the court answered both questions in the negative, denying the deductions claimed by the assessee. The judgment emphasized that income receipts, once taxed in earlier years, cannot be claimed as deductions in subsequent years unless falling under specific provisions like section 10(2)(xi). The assessee was directed to pay the costs of the Commissioner, highlighting the dismissal of the claims for deductions under sections 10(2)(xi) and 12(2).
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