V.S. Desai, J.
1. The question raised in this reference under section 66(1) are as follows :
'1. Whether, on the facts and in the circumstances of the case, the sum of Rs. 18,237 is liable to be allowed as a deduction under the provisions of section 10(2) (xi)
2. Whether, on the facts and in the circumstances of the case, the assessee was eligible for deduction under section 12(2) of the sum of Rs. 26,800 representing unrealised dividends taxed in earlier year in computing the total income for the assessment year 1960-61 ?'
2. The assessee was a shareholder and director of the Famous Finance Corporation Pvt. Ltd., which was carrying on the business of distributing cinema films. The assessee held 1/3 of the subscribed share capital of the said company. He had made advances to the said company from time to time although he was not a money-lender an was not carrying on any money-landing business. The assessee, however, had other lines of business. In the assessment years 1950-51 to 1953-54, corresponding to S. Y. 2005 to S. Y. 2008, the assessee had debited the interest due to him from the company on the advances made by him to the company and in each of these years he had brought the sums debited to his profit and loss accounted in the income-tax return he had shown the debited interest as interest income. The assessee maintained a mercantile system of accounting. In those assessment years, the interest offered for tax was duly brought to tax. In the next two years he had made similar debits of interest but had not offered the amounts for tax on the ground that they represented unrealisable interest. His stand was accepted ultimately by the Tribunal and the said items were excluded from the assessment of the assessee. In S. Y. 2015, which was the previous year for the assessment year 1960-61, with which we are concerned, the assessee claimed as deduction a total amount of Rs. 95,427. This included an amount of Rs. 18,237, which was the aggregate of the amount of interest on the loans advanced by the assessee to the company during S. Ys. 2005 and 2008, on which the assessee had paid tax during the said account years. It also included a sum of Rs. 26,800 which represented the unrealised dividend declared by the company during S. Ys. 2007 to 2010 and which had been shown in the returns for the said years and brought to tax. Both these items of deductions were disallowed by the Income-tax Officer and the disallowance was confirmed in Appellate Assistant Commissioner and the Income-tax Appellate Tribunal.
3. With regard to the first item, the claim of the assessee is that it should have been allowed as a bad debt of his business under section 10(2) (xi) or at any rate it should have been allowed on the general principal of computation of the real income of business under section 10. As regards the second item, his contention is that, since the dividend amount has already borne tax in the previous years, on the assessee having failed to realise the amount, the same should be allowed as a deduction under section 12(2) or on general principles of equity.
4. In our opinion neither of the contentions of the assessee is entitled to succeed. The findings of the departmental authorities and the Tribunal are that the assessee had no money-lending business and the advances made to the company were not in connection with any such money-lending business activity of the assessee. The assessee had no business relations with the company and the advances made were not connected with any business activity of the assessee or incidental to the business activity of the assessee. The Appellate Assistant Commissioner has further observed that the advances made by the assessee to the company were the result of the relationship which the assessee had with the company inasmuch as he was a shareholder of the company to the extent of 1/3rd of its subscribed share capital and was interested in it. In view of these findings, it is impossible to look upon the deduction as a bad debt of the business under section 10(2) (xi) of the Indian Income-tax Act.
5. It is also difficult to accept the assessee's contention that the said item should be deducted in computing the real income of the assessee on the ground that the item represented the income receipt of earlier years on which tax was paid and which in fact has not been realised by the assessee. The Tribunal has pointed out that there is no provisions in the Indian Income-tax Act under which such a deduction can be permitted, and in our opinion the Tribunal is right in what it has stated. An income receipt, which has borne tax in an earlier year, if it is lost to the assessment in a subsequent year, cannot be claimed as a deduction in the subsequent year except in the cases coming under section 10(2) (xi) of the Income-tax Act. The argument that because the item was once subjected to tax should be allowed to be deducted on that score is, in our opinion, not capable of being justified at all.
6. As to the other item of Rs. 26,800, the claim for deduction, in our opinion, is even less sustainable. What is allowed as a deduction under section 12(2) is expenditure solely for the purpose of earning the dividend income. If the assessee failed to realise the dividend income, the non-receipt of the income will be not amount to an expenditure incurred in earning it so as to be deductible under section 12(2).
7. In our opinion, therefore, our answers to both the questions are in the negative. The assessee will pay the costs of the Commissioner.
8. Questions answered in the negative.