Interest paid on money borrowed for investment in shares

By | August 18, 2015

Q :whether interest paid on money borrowed for investment in shares, which had not yet yielded any dividend is admissible expenditure under section 57(iii)  ?

Interest paid on money borrowed for investment even in shares which had not yet yielded any dividend, was admissible under section 57(iii)

HIGH COURT OF CALCUTTA

Sri Saytasai Properties & Investment (P.) Ltd.

v.

Commissioner of Income-tax, Central-II, Kolkata

GIRISH CHANDRA GUPTA AND TAPASH MOOKHERJEE, JJ.

IT APPEAL NO. 257 OF 2003

FEBRUARY  10, 2014

FACTS-I

■        The assessee claimed certain expenditure on account of interest which it borrowed for purpose of making investment in shares.

■        The Assessing Officer disallowed the same on ground that investment, for which money was borrowed, was not for purpose of earning dividend.

■        On appeal, the Tribunal upheld the decision of Assessing Officer.

■        On appeal to the High Court:

HELD -I

■        The expenditure on account of interest was a proper expenditure allowable under section 57. The reason which found favour both with the Assessing Officer and the Tribunal was that the investment was not for the purpose of earning dividend. It could not be followed as to how can it be said that earning of dividend can be the sole motive or the sole source for the purpose of making income from other sources. What is an income from other sources has not been put into any straight jacket formula. Even the legislature has not attempted to define the words expressly. Income from other sources is a very wide term. The legislature has advisedly expressed ‘without prejudice to the generality of the provision’. Therefore, there was no reason why a proper expenditure should have been disallowed only because the investment was not made for the purpose of earning dividend. There is no finding that the investment was made otherwise than for the purpose of making an income. Therefore, both the Tribunal and the Assessing Officer were wrong in disallowing the expenditure. Accordingly, the question is answered in the negative and in favour of the assessee. [Para 11]

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