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TMI Blog1962 (8) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... on borrowings which amounted to in all ₹ 2,15,154 as at the close of the year, the whole of which he claimed as a deduction in the aforesaid assessment. The Income-tax Officer, considering the proportion of the investment in Southern Transports Limited to the total borrowings, estimated the interest relating to the aforesaid investments at ₹ 7,500 which he disallowed in the assessment on the ground that the amount invested in the company cannot be said to have been utilised in the business carried on by the assessee. In this assessment, there was no income assessed under section 12. 4. The assessee appealed to the Appellate Assistant Commissioner. In this appeal, the assessee did not challenge the quantum of the estimate. The Appellate Assistant Commissioner allowed this contention in paragraph 14 of his order which is reproduced below: 14. Item (v). Disallowance of interest of ₹ 7,500.--The appellant had invested a sum of ₹ 65,000 in shares of the Southern Transports Limited. A portion of his borrowings was utilised in these investments. The interest attributable to the funds utilised in the investment was disallowed by the officer in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt money during that year to the same company to the tune of about ₹ 35,552. He borrowed in the course of that year, from various persons, in all, a sum of ₹ 2,15,154. It is not in dispute that a portion of that borrowing was utilised for the purchase of the shares of the Southern Transports Ltd. For the assessment year 1957-58, relevant to the previous year ended on 30th June, 1956, he claimed deduction, in the computation of his business income, of a sum of ₹ 21,048, representing interest paid by him on the total borrowing of ₹ 2,15,154. The Income- tax Officer, who dealt with his assessment, estimated the interest relating to the borrowed amount utilised for the purchase of shares at ₹ 7,500 and disallowed it on the ground that the amount borrowed for purchase of shares was not for the purpose of the transport business. The assessee had only two heads of income under section 6 of the Act, business and property. He had no income to be assessed under the miscellaneous head covered by section 12 of the Act. The assessee preferred an appeal to the Appellate Assistant Commissioner, objecting to the disallowance of the interest payment of ₹ 7,500, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness income. First, we have to determine the question whether the purchase of shares by the assessee in the Southern Transports Ltd. was part of his business activity as a transport operator. He was, of course, not a dealer in shares; he was not buying and selling shares. If it was within the scope of his transport business to acquire or purchase shares of limited companies, the purchase of shares of Southern Transports Ltd. would be part of that trading activity and it would be immaterial whether or not he was doing business in shares apart from the transport business. A transport operator cannot be said to act within the range of his business as such, if he were to acquire or purchase shares in a film-producing company or a textile manufacturing company. The very fact that the two things, the transport business and the purchase of shares, are remote from each other and are not interdependent dissociates the purchase of shares from the business. But, it is argued by the learned counsel for the assessee that the Southern Transports Ltd. is a company doing transport business just like the assessee and that the similarity of the businesses is sufficient to establish that the purchas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the claim for allowances under section 12(2) is that the expenditure should not be in the nature of a capital expenditure and should have been incurred solely for the purpose of making or earning such income, profits or gains . The language of this section can be compared to that of section 10(2)(xv). That section reads: Any expenditure (not being an allowance of the nature described in any of the clauses (i) to (xiv) inclusive, and not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of such business, profession or vocation. We must observe that there is great similarity between these two provisions, section 12(2) and section 10(2)(xv), though there are shades of differences as well. Now, the question is whether the payment of ₹ 7,500 by way of interest by the assessee for securing the capital invested in the shares of the Southern Transports Ltd. can be said to be expenditure incurred solely for the purpose of making or earning income. It cannot be doubted that if the assessee had earned income by way of dividend from these shares, the interest payment of &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee's other income under section 24(1) of the Act. In taking that view, the learned judges differed from the decision of the Patna High Court in Maharajadhiraj Sir Kameshwar Singh v. Commissioner of Income-tax*. The Allahabad High Court followed the Bombay view in Chhail Beharilal v. Commissioner of Income-tax. The facts in that case were as follows: The assessees, who were partners in a firm, borrowed ₹ 2,50,000 each for the firm and purchased shares in a company. During the relevant accounting year, they did not receive any dividends but each had to pay the sum of ₹ 6,688 as interest on the money borrowed. The assessees claimed that the amount so paid by each of them was expenditure deductible under section 12(2) of the Act and should be set off under section 24(1) against their income under other heads. The High Court held that the assessees were so entitled. There is no discussion of the question involved for decision in that case, as the learned judges found themselves completely in agreement with the view of the Bombay High Court in Ormerod's (India) Private Ltd. v. Commissioner of Income-tax***. In the decisions cited above, reference has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company, which he treated as an investment. He made a contribution to the trustees for debenture holders in the company for the expenses of litigation against the U.P. Government, who revoked their undertaking to purchase the company, as a going concern and pressed for its winding up. The assessee claimed that the contribution was for the purpose of safeguarding his interest in the shares of the company. The department and the Tribunal did not allow the expenditure on the ground that the company had ceased to pay dividends. The assessee also claimed deduction under section 12(2) of interest paid on overdrafts obtained for payment of income-tax (both Central and agricultural), payment of land revenue and cess, and payment of call moneys on shares in companies which were found to be new and which had not declared dividends. The Patna High Court held that no deduction was permissible in respect of contribution to litigation expenses and of interest on overdrafts for payment of call moneys on shares in companies which were new and which had not declared dividends mainly on the ground that the expenses were not incurred for making or earning the income. There are no doubt observations i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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