Page 386 - DCOM301_INCOME_TAX_LAWS_I

Unit 13: Income from Other Sources

the Act on the ground that the investment in shares was part of its business, and that, at any Notes
rate, the acquisition of shares in the said concerns was necessary for the purpose of
furtherance of preservation of its own business.
The claim was disallowed by the Income-tax Officer on the ground that these investments
did not relate to his business, and that they did not yield any income. It filed appeals
before the Appellate Assistant Commissioner, and urged the above claims not only under
section 10(2) of the Act, but also under section 12. The Appellate Assistant Commissioner
rejected the assessee’s claim under section 10(2) on the same ground as was stated by the
Income-tax Officer. It also held that the claim was not admissible under section 12 of the
Act, as the investments in shares were not a regular investment. The assessee filed appeals
before the Income-tax Appellate Tribunal. The appeals were dismissed by a common
order dated 26th February, 1964; and these references arose out of the said order. The
questions referred in I.T.R. No. 19 of 1967 are:

1. Whether, on the facts and circumstances of the case, the assessee is not entitled to the
deduction of the sum of ` 18, 525 in computation of his business income for the
assessment year 1958–59 under section 10(2)(iii) or (xv) or under section 12 of the
Indian Income-tax Act, 1922?
2. Whether, on the facts and circumstances of the case, the disallowance of the interest
of ` 18,525 as not admissible under section 10(2) (iii) or (xv) or under section 12 of the
Indian Income-tax Act, 1922, is valid in law?”

The questions referred in I.T.R. No. 20 are exactly the same, except that ` 17,514 has to be
substituted for ` 18,525. In substance, questions Nos. 1 and 2 are the same; and they can
admit of only the same answer. Both the questions consist of two parts: and we shall first
deal with the first part.
The question whether the acquisition of shares by the assessee in the concerns referred to
above was for the purpose of furtherance or preservation of its own business is one of fact.
The Appellate Tribunal, after a detailed consideration of the facts and circumstances of the
case, held that the said investments were unconnected with the assessee’s business. In the
light of this finding, the learned counsel for the assessee did not rightly press the assessee’s
claim for deduction on this ground. The assessee is not admittedly a dealer in shares; and
purchase of shares is not obviously a part of its business. If any income arose to the
assessee out of the investments on shares, it would not fall under the head “business”, but
only under the head “other sources”. So the expenditure incurred by way of interest paid
in respect of investments made for buying shares cannot be claimed as a business
expenditure of the assessee. It must, therefore, follow that the first part of the questions
referred to us in both these cases must be answered against the assessee.
The next question for consideration is whether the claim can be allowed under section 12
of the Act. The reason for disallowing this claim is stated by the Appellate Tribunal in
paragraph 25 of its order; and it reads as follows:
“In our opinion, section 12 has also no application. The case relied on by the assessee’s
learned counsel, Appa Rao v. Commissioner of Income-tax, preceded on the finding that
the expenditure by way of payment of interest was incurred solely for the purpose of
making or earning such income from the shares acquired with the amount borrowed. The
only point made out by the department was that there was no income. The facts in the
assessee’s case are entirely different. The Appellate Assistant Commissioner stated that
the shares had come out of borrowals but that was on an overall position of the capital
account and profits and the amount of investments from year to year. There is no direct
connection between the money borrowed and the purchase of shares. Even according to
Contd...

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