COMMISSIONER OF INCOME TAX Vs. GOPAL CH PATNAIK

JUDGEMENT

(1.) THESE are two references made under S. 256(1) of the IT Act, 1961 (hereinafter reference to as "the Act"), by the Tribunal on an application of the Revenue and the following question has been sent for opinion of the Court : "Whether, on the facts and in the circumstances of the case, the interest on monies borrowed for purchase of shares should be allowed as a deduction even though shares had not yielded any dividend in the relevant accounting year ?"

(2.) THE relevant years of assessment are 1965 66 and 1966 67. Assessee, an individual, purchased equity sharer, in M/s Kalinga Tubes Ltd. by borrowing from M/s Kalinga Foundation Trust and the Central Government of India. During the two years, assessee had to pay interest of Rs. 29,915 and Rs. 4,462, respectively, on the loans and claimed deduction thereof in respect of the respective assessment proceedings. The ITO disallowed the claim on the ground that in the years of assessment, the shares purchased by the assessee yielded no dividend. The disallowance was upheld by the AAC in the assessee's appeals. In further appeal to the Tribunal, the assessee, reiterated his challenge against the liability. The Tribunal allowed the claim of deduction holding that regardless of the fact whether the shares yielded dividend or not, payment of interest was allowable as a deduction.

(3.) SPECIFIC provision has been made in Chapter IV regarding computation of income from the different heads. In fact Chapter IV is divided into six sub heads beginning from S. 15. Under head A relating to salaries, ss. 15 to 17 come while under head B relating to interest on securities, ss. 18 to 21 are grouped. Similarly, ss. 22 to 27 relate to the third head C dealing with income from house property. Secs. 28 to 44B relate to the fourth head D relating to profits and gains of business or profession. Secs. 45 to 55A deal with head "E" relating to capital gains and the last head F deals with income from other sources and ss. 56 to 59 make provision for it. It is claimed that under each of the heads, admissible deductions have been separately indicated. "Dividend income" would come under the residuary head F. Therefore, unless interest as a deduction is admissible under S. 57 of the Act, the assessee's claim cannot be sustained. Sec. 57 of the Act provides :