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Commissioner of Income-tax Vs. Straw Products Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 400 of 1974
Judge
Reported in[1987]165ITR225(Cal)
ActsIncome Tax Act, 1961 - Section 19
AppellantCommissioner of Income-tax
RespondentStraw Products Ltd.
Appellant AdvocateB.K. Naha, Adv.
Respondent AdvocateDebi Pal and ;R.K. Murarka, Advs.
Excerpt:
- .....this court in the case of phillips carbon block ltd. v. cit : [1982]136itr205(cal) , where the court went into the meaning of the word ' investment ' in a case under section 84 of the income-tax act, 1961.5. this question whether the assessee bought the securities by way of investment or otherwise was not raised before the tribunal. it is really a question of fact. what was the intention behind the purchase could only be gone into and decided by the tribunal. mr. naha has contended that this is only another aspect of the question that has already been raised. but, in our opinion, this is not a pure question of law. it involves investigation into facts. since this question was neither raised nor argued beforethe tribunal, we declined to go into that question. what was the intention of.....
Judgment:

Suhas Chanpra Sen, J.

1. The following question of law has been referred to us by the Tribunal at the instance of the Revenue:

' Whether, on the facts and in the circumstances of the case and in view of the fact that no interest on the securities purchased by the assessee was due to it, the Tribunal was correct in law in holding that theinterest paid on the moneys borrowed for the purchase of the said securities was allowable under Section 19(ii) of the Income-tax Act, 1961 '

The relevant assessment year is the assessment year 1962-63 for which the accounting period ended on December 31, 1961. In the course of assessment, the Income-tax Officer disallowed a claim for deduction of interest on account of loans taken for purchasing certain securities floated by the Government of Orissa. This claim was ultimately upheld by the Tribunal.

2. Mr. Naha, appearing on behalf of the Revenue, has contended that the interest paid on moneys borrowed for the purchase of the securities could not be allowed as deduction under Section 19(ii) of the Income-tax Act, 1961, inasmuch as the assessee did not have any income chargeable under the head ' Interest on securities'. There was no question of computation of any income under the head 'Intereston securities' and, therefore, the question of claim for any deduction under that head did not arise. Mr. Naha relied on a judgment of the Punjab High Court in the case of Seth Ram Gopal Mohta v. CIT , in support of his proposition.

3. Section 18 makes 'interest on securities' chargeable to tax. Section 19 provides, inter alia, ' Subject to the provisions of Section 21, the income chargeable under the head 'Interest on securities' shall be computed after making the following deductions--......

(ii) any interest payable on moneys borrowed for the purpose of investment in the securities by the assessee.'

Here is a close similarity in the wording of Section 19 and that of Section 57 which deals with deductions from ' Income from other sources'. In the case of CIT v. Rajendra Prasad Moody : [1978]115ITR519(SC) , the Supreme Court dealt with a question very similar to the question raised before us in this reference. In that case, the argument of the Revenue was (at pages 522 and 523):

' It is also interesting to note that, according to the Revenue, the expenditure would disqualify for deduction only if no income results from such expenditure in a particular assessment year, but if there is some income, howsoever small or meagre, the expenditure would be eligible for deduction. This means thatiin a case where the expenditure is Rs. 1,000, if there is income of even Re. 1, the expenditure would be deductible and there would be resulting loss of Rs. 999 under the head ' Income from other sources'. But if there is no income, then, on the argument of the Revenue, the expenditure would have to be ignored as it would not be liable to de deducted. This would indeed be a strange and highly anomalous result and it is difficult to believe that the Legislature could have everintended to produce such illogicality. Moreover, it must be remembered that when a profit and loss account is cast in respect of any source of income what is allowed by the statute as proper expenditure would be debited as an outgoing and income would be credited as a receipt and the resulting income or loss would be determined. It would make no difference to this process whether the expenditure is X or Y or nil; whatever is the proper expenditure allowed by the statute would be debited. Equally, it would make no difference whether there is any income and if so, what, since whatever it be, X or Y or nil, would be credited. And the ultimate income or loss would be found. We fail to appreciate how expenditure which is otherwise a proper expenditure can cease to be such merely because there is no receipt of income. Whatever is a proper outgoing by way of expenditure must be debited irrespective of whether there is receipt of income or not. That is the plain requirement of proper accounting and the interpretation of Section 57(iii) cannot be different. The deduction of the expenditure cannot, in the circumstances, be held to be conditional upon the making or earning of the income.'

In the light of the observations of the Supreme Court, the claim of deduction made by the assessee cannot be denied on the ground that there was no income from interest on securities in the year in question.

4. Mr. Naha also raised an interesting question which, however, cannot be gone into in this reference. Mr. Naha drew our attention to the fact that the securities that were purchased by the assessee were sold in the very next year. Mr. Naha also drew our attention to the argument made by the assessee that the securities were purchased for the purpose of being on good terms with the State Government. Mr. Naha argued that it will be evident from these factors that the securities were not purchased for the purpose of making any investment and the language of Section 19(ii) required the moneys to be borrowed ' For the purpose of investment in the securities '. Our attention was drawn to a judgment of this court in the case of Phillips Carbon Block Ltd. v. CIT : [1982]136ITR205(Cal) , where the court went into the meaning of the word ' investment ' in a case under Section 84 of the Income-tax Act, 1961.

5. This question whether the assessee bought the securities by way of investment or otherwise was not raised before the Tribunal. It is really a question of fact. What was the intention behind the purchase could only be gone into and decided by the Tribunal. Mr. Naha has contended that this is only another aspect of the question that has already been raised. But, in our opinion, this is not a pure question of law. It involves investigation into facts. Since this question was neither raised nor argued beforethe Tribunal, we declined to go into that question. What was the intention of the assessee behind the purchase of the securities cannot be fathomed at this stage.

6. In the facts and circumstances of the case, the question is answered in the affirmative and in favour of the assessee. There will be no order as to costs.

Dipak Kumar Sen, J.

7. I agree.


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