COMMISSIONER OF INCOME TAX Vs. MIMRAJ MANMAL RUIA

JUDGEMENT

(1.) THE assessee, a speculator in cotton and shares, also derives income from salary, properties and dividends. At the end of S. Y. 2014, corresponding to the assessment year 1959-60, his liabilities included an overdraft from the Bank of India Ltd., Kalbadevi branch, in the sum of Rs. 1,63,904 and loans from sundry creditors amounting to Rs. 2,94,206. Among other items of income, he returned an income of Rs. 27,677 from dividends and claimed against it a deduction of Rs. 18,934 which was made up of interest at Rs. 9,408 paid to the bank and interest at Rs. 9,526 paid to the other creditors.

(2.) THE Income-tax Officer and the Appellate Assistant Commissioner allowed the whole of the deduction as a business loss under section 10(2) (iii) and not under section 12(2) of the Income-tax Act, 1922, as claimed by the assessee. By a cryptic order, the Tribunal has allowed the deduction to the extent of Rs. 9,408 only which amount was paid by the assessee to the bank by way of interest on the overdraft. THE reason given by the Tribunal in support of its order is difficult to summarise and it is better that we set out its conclusion in its own words :

(3.) THE question therefore which requires consideration is whether the interest paid by the assessee to the bank on the overdraft account is an expenditure incurred by him solely for the purpose of earning the dividends. THE Tribunal has not applied its mind to the provisions of section 12(2) at all and has allowed the deduction partially, on the ground that there can be said to be "a co-relation between the dividend income and the interest payment established through the bank account." We regret to have to say that it is impossible to understand from the judgment of the Tribunal as to which bank account it had in its mind and what sort of co-relation it thought was established between the dividend income and the interest paid by the assessee to the bank.