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Unit 13: Income from Other Sources

section 12(2) of the Act in computing the income of the assessee under “other sources”. We Notes
shall now quote the relevant parts of section 12:
12. Other sources.
1. The tax shall be payable by an assessee under the head income from other sources in
respect of income, profits and gains of every kind which may be included in his total
income (if not included under any of the preceding heads).
Income from other sources shall include dividends.

2. Such income, profits and gains shall be computed after making allowance for any
expenditure (not being in the nature of capital expenditure) incurred solely for the
purpose of making or earning such income, profits or gains, and further in the case
of any income by way of dividend, for any reasonable sum paid by way of
commission or remuneration to a banker or any other person realising such dividend
on behalf of the assessee, provided that no allowance shall be made on account of:
(a) any personal expenses of the assessee, or
(b) any interest chargeable under this Act which is payable without the taxable
territories, not being interest on a loan issued for public subscription before
the 1st day of April, 1938, or not being interest on which tax has been paid or
from which tax has been deducted under section 18, or
(c) any payment which is chargeable under the head salaries, if it is payable
without the taxable territories and tax has not been paid thereon nor deducted
therefrom under section 18.”
The learned counsel for the assessee relied on a decision of the Madras High Court in P. V.
Mohamed Ghouse v. Commissioner of Income-tax. In that case, the owner of a transport
business borrowed money for purchasing shares in another transport company and claimed
the interest, which he had paid on the money borrowed, as a deduction against his income
from transport business under section 10(2)(iii) of the Act, and alternatively under section
12(2). The contention that it would fall under section 10(2)(iii) was rejected by the High
Court; but it allowed the claim under section 12(2). Upholding the claim, their Lordships
said:
“It cannot be doubted that if the assessee had earned income by way of dividend from
these shares, the interest payment of ` 7,500 would be a proper charge on that income. So
much is conceded by Mr. Ranganathan, learned counsel for the department. But then, it is
pointed out that the assessee did not earn any dividend income from these shares in the
relevant year, and, in fact, he had no income to be assessed under the miscellaneous head
of section 12. The submission on behalf of the revenue is that the absence of any income by
way of dividend or other miscellaneous income under section 12 operates as a bar against
the assessee to claim the interest payment as a revenue charge.
It is now a well-accepted rule of income-tax law that what the statute allows as a proper
allowance or expenditure, and which can be brought on the debit side of the assessee
profit and loss account to off-set his credit receipts and to compute the income, profits and
gains chargeable, cannot be defeated by the mere accident of the assessee not being in a
position to show that the receipts exceed the expenses or that the credit side is larger in
amount than the debit side.”
This decision fully supports the claim of the assessee.
The learned counsel for the revenue advanced before us the same contention as was put
forward by his counterpart before the Madras High Court in the above case, and submitted
Contd...

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