Smt. Padmavati Jaikrishna Vs. The Addl. Commissioner of Income-Tax, Gujarat, Ahmedabad
EmailAppeal: Civil Appeal No. 65 of 1975.
(From the Judgment and Order dated 3.12.1973 of the Gujarat High Court in I.t.R. No. 35 of 1972)
(From the Judgment and Order dated 3.12.1973 of the Gujarat High Court in I.t.R. No. 35 of 1972)
Petitioner: Smt. Padmavati Jaikrishna
Respondent: The Addl. Commissioner of Income-Tax, Gujarat, Ahmedabad
Apeal: Civil Appeal No. 65 of 1975.
(From the Judgment and Order dated 3.12.1973 of the Gujarat High Court in I.t.R. No. 35 of 1972)
(From the Judgment and Order dated 3.12.1973 of the Gujarat High Court in I.t.R. No. 35 of 1972)
Judges: R.S. PATHAK, CJ., RANGANATH MISRA & K.N. SINGH, JJ.
Date of Judgment: Apr 22, 1987
Appearances:
Mr. T.A. Ramachandran, Senior Advocate, Mrs. J. Ramachandran and Mr. S.C. Ratelh, Advocates with him for the Appellant.
Mr. V.S. Desai, Senior Advocate and Ms. A. Subhashini, Advocate with him for the Respondent.
Head Note:
INCOME-TAX ACT, 1961:
Section 57(iii) – Assessee claimed deduction in respect of interest on loans taken by her – Finding of fact that loan taken to meet the personal liability of payment of income-tax and wealth-tax and annuity – Annuity deposit was to meet the statutory liablity and not to earn income by way of interest – Tests to be applied – Expenditure should be wholly and exclu- sively for the purpose of earning the income – No part the expenditure came within the purview of section 57(iii).
Section 57(iii) – Assessee claimed deduction in respect of interest on loans taken by her – Finding of fact that loan taken to meet the personal liability of payment of income-tax and wealth-tax and annuity – Annuity deposit was to meet the statutory liablity and not to earn income by way of interest – Tests to be applied – Expenditure should be wholly and exclu- sively for the purpose of earning the income – No part the expenditure came within the purview of section 57(iii).
Cases Reffered:
1. Eastern Investments Ltd. v. Commissioner of Income-tax, West Bengal, 1951 ITR (20) 1.
2. Bai Bhuriben Lallubhai v. Commissioner of Income-tax, Bombay North Cutch and Saurashtra, 1956 ITR (XXIX) 543.
3. Commissioner of Income-tax, West Bengal v. Rajendra Prasad Moody, 1976 ITR (115) 519.
2. Bai Bhuriben Lallubhai v. Commissioner of Income-tax, Bombay North Cutch and Saurashtra, 1956 ITR (XXIX) 543.
3. Commissioner of Income-tax, West Bengal v. Rajendra Prasad Moody, 1976 ITR (115) 519.
JUDGEMENT:
RANGANATH MISRA, J:
1. This appeal by certificate is directed against the judgment of the High Court of Gujarat.
2. Assessee is assessed as an individual and she derived income from “other sources” being in the shape of interest, dividends etc. The relevant year of assessment is 1966-67. During this year assessee claimed deduction of Rs.26986/- being interest paid to Barivallabhdas Kalidas Estate on loans taken by her. The Income-tax Officer found that out of the loans real in-vestment was of a sum of Rs.1250/- only. He disallowed the claim to the extent of Rs.10,275/- on proportionate basis. According to him this claim could not be admitted under sec-tion 57(iii) of the Income-tax Act of 1961.
3. Assessee’s first appeal to the Appellate Assistant Commis-sioner was rejected. The Appellate Authority relied upon the ratio of the decision of the Bombay High Court in BAI BHURIBEN LALLUBHAI V. COMMISSIONER OF INCOME-TAX, BOMBAY NORTH CUTCH AND SAURASHTRA 1956 ITR (XXIX) 543 and dismissed the appeal.
4. In further appeal before the Tribunal the claim of the assessee was reiterated by contending that expenditure under the head of payment of income-tax and wealth-tax and annuity deposits should have been taken as revenue expenditure and the claim of interest in respect of such loans should have been admitted. It was further contended that the assessee instead of liquidating the investments which were return-oriented, found it commercially expedient and viable to raise a loan instead of disturbing the investments and, therefore, the claim became admissible in law. The Tribunal did not accept this contention and observed that the loans were taken for meeting her personal obligation like pay-ment of taxes and deposit of annuity and these had nothing to do with the business. The Tribunal also relied upon the ratio of Bombay High Court decision referred to above. As the Tribunal dismissed the appeal assessee asked for the case to be stated to the High Court and the following question was referred for its opinion:
“Whether on the facts and in the circumstances of the case, payment of interest to the extent of Rs.10,279/- was not an admissible deduction under section 57(iii) of the Income-tax Act?”
The High Court referred to various authorities and decided against the assessee by concluding that at the relevant time it was obligatory for the assessee to make the annuity deposit and the earning of interest through such deposit was merely inciden-tal. The High Court further found that the portion of the loan was not intended to meet expenditure wholly and exclusively for the purpose of earning the income and therefore did not come under section 57(iii) of the Act.
5. It is not disputed by Mr. Ramchandran for the assessee that unless the claim comes within the purview of section 57(iii) of the Act it would not be admissible as a deduction. That section as far as relevant provides:
“The income chargeable under the head ‘income from other sourc- es’ shall be computed after making the following deductions, namely:-
(i) …
(ii) …
(iii) any other expenditure (not being in the nature of
capital expenditure) laid out or expended wholly and exclusive ly for the purpose of making or earning such income:-
Provided……………”
Explanation:………..”
6. In order that the claim for the deduction could be sus-tained, it was for the assessee to satisfy the Income-tax Officer that the loan interest in respect of which is claimed as deduc-tion was laid out or expended wholly and exclusively for earning the income from out of which the deduction was claimed. There is no dispute that the provision of section 57 of the Act corre-sponds to section 12(2) of the Act of 1922. Dealing with a claim under section 12(2) of the 1922 Act this Court in EASTERN INVEST-MENTS LTD. V. COMMISSIONER OF INCOME-TAX, WEST BENGAL 1951 ITR (20) 1, summarised the position of law thus:-
“On a full review of the facts it is clear that this transac- tion was voluntarily entered into in order indirectly to facil- itate the carrying on of the business of the company and was made on the ground of commercial expediency. It therefore falls within the purview of Section 12(2) of the Income-tax Act, 1922, before the amendment……..”
“This being an investment company, if it borrowed money and utilised the same for its investments on which it earned income, the interest paid by it on the loans will clearly be a permissible deduction under section 12(2) of the Income-tax Act.”
7. In COMMISSIONER OF INCOME-TAX, WEST BENGAL V. RAJENDRA PRASAD MOODY 1976 ITR(115) 519, this Court observed:
“The determination of the question before us turns on the true interpretation of section 57(iii) and it would, therefore, be convenient to refer to that section, but before we do so, we may point out that section 57(iii) occurs in a fasciculus of sections under the heading, “F – Income from other sources”. Section 56, which is the first in this group of sections, enacts in sub-section (1) that specified in section 14, Items A to B, shall be chargeable to tax under the head “Income from other sources” and sub-section (2) includes in such income various items, one of which is “dividends”. Dividend on shares is thus income chargeable under the head “Income from other sources”. Section 57 provides for certain deductions to be made in computing the income chargeable under the head “Income from other sources” and one of such deductions is that set out in clause (iii), which reads as follows:…….”
“The expenditure to be deductible under section 57(iii) must be laid out or expended wholly and exclusively for the purpose of making or earning such income….”
8. In the said decision this Court clearly indicated that:
“It is the purpose of the expenditure that is relevant in determining the applicability of section 57(iii) and that purpose must be making or earning of income.”
The taxing authorities as also the High Court have clearly recorded a factual finding facts that the expenditure in this case was to meet the personal liability of payment of income-tax and wealth-tax and annuity. From the order of the Tribunal as also the judgment of the High Court it appears that the assessee had taken the stand that even if the claim relating to income-tax and wealth-tax was not admissible, that part of the claim relat-able to annuity deposit should have been admitted as it fetched interest. We are inclined to agree with the High Court that so far as meeting the liability of income-tax and wealth-tax is concerned it was indeed a personal one and payment thereof cannot at all be said to be expenditure laid out or expended wholly and exclusively for the purpose of earning income. So far as annuity deposit is concerned the Tribunal and the High Court have come to the right conclusion that the dominant purpose was not to earn income by way of interest but to meet the statutory liability of making the deposit. The test to apply is that the expenditure should be wholly and exclusively for the purpose of earning the income. The fact finding authorities have come to the conclusion that no part of the expenditure came within the purview of sec-tion 57 (iii) of the Act.
9. Mr. Ramchandran then maintained that even if there was an indirect link between the expenditure and the income earned, the claim would be admissible and relied upon the observations of Bose, J. in EASTERN INVESTMENTS case. No attempt has been made by the assessee to point out before the taxing authorities or even before the High Court by placing the necessary facts to justify such a claim. On mere assumptions such a point cannot be allowed to be raised here for consideration. In fact unless the loan is incurred for meeting the liability connected with the sources itself it would ordinarily be difficult to entertain the claims for deduction.
10. This appeal has to fail and the order of the High Court has to be affirmed. We accordingly dismiss the appeal but leave the parties to bear their respective costs.
Appeal dismissed.
1. This appeal by certificate is directed against the judgment of the High Court of Gujarat.
2. Assessee is assessed as an individual and she derived income from “other sources” being in the shape of interest, dividends etc. The relevant year of assessment is 1966-67. During this year assessee claimed deduction of Rs.26986/- being interest paid to Barivallabhdas Kalidas Estate on loans taken by her. The Income-tax Officer found that out of the loans real in-vestment was of a sum of Rs.1250/- only. He disallowed the claim to the extent of Rs.10,275/- on proportionate basis. According to him this claim could not be admitted under sec-tion 57(iii) of the Income-tax Act of 1961.
3. Assessee’s first appeal to the Appellate Assistant Commis-sioner was rejected. The Appellate Authority relied upon the ratio of the decision of the Bombay High Court in BAI BHURIBEN LALLUBHAI V. COMMISSIONER OF INCOME-TAX, BOMBAY NORTH CUTCH AND SAURASHTRA 1956 ITR (XXIX) 543 and dismissed the appeal.
4. In further appeal before the Tribunal the claim of the assessee was reiterated by contending that expenditure under the head of payment of income-tax and wealth-tax and annuity deposits should have been taken as revenue expenditure and the claim of interest in respect of such loans should have been admitted. It was further contended that the assessee instead of liquidating the investments which were return-oriented, found it commercially expedient and viable to raise a loan instead of disturbing the investments and, therefore, the claim became admissible in law. The Tribunal did not accept this contention and observed that the loans were taken for meeting her personal obligation like pay-ment of taxes and deposit of annuity and these had nothing to do with the business. The Tribunal also relied upon the ratio of Bombay High Court decision referred to above. As the Tribunal dismissed the appeal assessee asked for the case to be stated to the High Court and the following question was referred for its opinion:
“Whether on the facts and in the circumstances of the case, payment of interest to the extent of Rs.10,279/- was not an admissible deduction under section 57(iii) of the Income-tax Act?”
The High Court referred to various authorities and decided against the assessee by concluding that at the relevant time it was obligatory for the assessee to make the annuity deposit and the earning of interest through such deposit was merely inciden-tal. The High Court further found that the portion of the loan was not intended to meet expenditure wholly and exclusively for the purpose of earning the income and therefore did not come under section 57(iii) of the Act.
5. It is not disputed by Mr. Ramchandran for the assessee that unless the claim comes within the purview of section 57(iii) of the Act it would not be admissible as a deduction. That section as far as relevant provides:
“The income chargeable under the head ‘income from other sourc- es’ shall be computed after making the following deductions, namely:-
(i) …
(ii) …
(iii) any other expenditure (not being in the nature of
capital expenditure) laid out or expended wholly and exclusive ly for the purpose of making or earning such income:-
Provided……………”
Explanation:………..”
6. In order that the claim for the deduction could be sus-tained, it was for the assessee to satisfy the Income-tax Officer that the loan interest in respect of which is claimed as deduc-tion was laid out or expended wholly and exclusively for earning the income from out of which the deduction was claimed. There is no dispute that the provision of section 57 of the Act corre-sponds to section 12(2) of the Act of 1922. Dealing with a claim under section 12(2) of the 1922 Act this Court in EASTERN INVEST-MENTS LTD. V. COMMISSIONER OF INCOME-TAX, WEST BENGAL 1951 ITR (20) 1, summarised the position of law thus:-
“On a full review of the facts it is clear that this transac- tion was voluntarily entered into in order indirectly to facil- itate the carrying on of the business of the company and was made on the ground of commercial expediency. It therefore falls within the purview of Section 12(2) of the Income-tax Act, 1922, before the amendment……..”
“This being an investment company, if it borrowed money and utilised the same for its investments on which it earned income, the interest paid by it on the loans will clearly be a permissible deduction under section 12(2) of the Income-tax Act.”
7. In COMMISSIONER OF INCOME-TAX, WEST BENGAL V. RAJENDRA PRASAD MOODY 1976 ITR(115) 519, this Court observed:
“The determination of the question before us turns on the true interpretation of section 57(iii) and it would, therefore, be convenient to refer to that section, but before we do so, we may point out that section 57(iii) occurs in a fasciculus of sections under the heading, “F – Income from other sources”. Section 56, which is the first in this group of sections, enacts in sub-section (1) that specified in section 14, Items A to B, shall be chargeable to tax under the head “Income from other sources” and sub-section (2) includes in such income various items, one of which is “dividends”. Dividend on shares is thus income chargeable under the head “Income from other sources”. Section 57 provides for certain deductions to be made in computing the income chargeable under the head “Income from other sources” and one of such deductions is that set out in clause (iii), which reads as follows:…….”
“The expenditure to be deductible under section 57(iii) must be laid out or expended wholly and exclusively for the purpose of making or earning such income….”
8. In the said decision this Court clearly indicated that:
“It is the purpose of the expenditure that is relevant in determining the applicability of section 57(iii) and that purpose must be making or earning of income.”
The taxing authorities as also the High Court have clearly recorded a factual finding facts that the expenditure in this case was to meet the personal liability of payment of income-tax and wealth-tax and annuity. From the order of the Tribunal as also the judgment of the High Court it appears that the assessee had taken the stand that even if the claim relating to income-tax and wealth-tax was not admissible, that part of the claim relat-able to annuity deposit should have been admitted as it fetched interest. We are inclined to agree with the High Court that so far as meeting the liability of income-tax and wealth-tax is concerned it was indeed a personal one and payment thereof cannot at all be said to be expenditure laid out or expended wholly and exclusively for the purpose of earning income. So far as annuity deposit is concerned the Tribunal and the High Court have come to the right conclusion that the dominant purpose was not to earn income by way of interest but to meet the statutory liability of making the deposit. The test to apply is that the expenditure should be wholly and exclusively for the purpose of earning the income. The fact finding authorities have come to the conclusion that no part of the expenditure came within the purview of sec-tion 57 (iii) of the Act.
9. Mr. Ramchandran then maintained that even if there was an indirect link between the expenditure and the income earned, the claim would be admissible and relied upon the observations of Bose, J. in EASTERN INVESTMENTS case. No attempt has been made by the assessee to point out before the taxing authorities or even before the High Court by placing the necessary facts to justify such a claim. On mere assumptions such a point cannot be allowed to be raised here for consideration. In fact unless the loan is incurred for meeting the liability connected with the sources itself it would ordinarily be difficult to entertain the claims for deduction.
10. This appeal has to fail and the order of the High Court has to be affirmed. We accordingly dismiss the appeal but leave the parties to bear their respective costs.
Appeal dismissed.
