Fazal, Ali, J. - (1.) In this appeal by special leave, the assessee who is an individual had purchased a large number of shares from the Bharat Bank Ltd. for Rs. 44,14,990/- by borrowing this amount from the Bharat Bank and he paid interest of Rs. 2,04,744/- on the said amount. In fact four years back i.e. in 1944-45 the joint family of which the assessee was a member had sold these very shares along with other shares to the Bharat Bank Ltd. The agreement by which the assessee purchased these shares is dated February 5, 1948 and is to be found at Annexure A on p. 19 of the Paper Book. In spite of the fact that the assessee had agreed to buy the shares from the Bharat Bank Ltd. he did not take delivery of the transfer forms and the share certificates by making payment of the purchase price. Under the agreement dated February 5, 1948 it was agreed that the shares would be taken delivery of on or before March 31, 1948. It was further agreed that if the shares were not taken delivery of by this date, the dividends, rights, bonuses etc. which may be declared after that date, namely, March 31, 1948 will be held by the Bank for the benefit of the assessee and the assessee would be liable to pay interest at the rate of 6% p.a. on the purchase price from April 1, 1948 till actual delivery of the shares. Clause (4) of the agreement provided that if for any reason the shares were not taken delivery of by March 31, 1951, the Bank will be at liberty to sell the then undelivered shares and to hold the assessee liable for the difference in the price fetched by the shares. The assessee did not take delivery of some of the shares until March 31, 1951, and paid a sum of Rs. 1,05,000/- as damages for his failure to take delivery as stipulated in the agreement between the parties. It is also the admitted case of the parties that the assessee earned a dividend income of Rs. 95,664/-. The assessment year in the instant case is 1953-54 i.e. the previous year ending September 30, 1952. The assessee claimed that he was entitled to deduct the interest paid for acquiring the shares worth Rs. 44,14,990/- and, therefore, a sum of Rs. 2,04,744/- was deductible under S. 12 (2) of the Income Tax Act, 1922 - hereinafter referred to as the Act. It was further alleged by the assessee that even the damages amounting to Rs. 1,05,000/- which he had paid to the Bharat Bank for not taking delivery of the shares were also deductible because this was a business expenditure. Finally, the assessee also claimed that the sum of Rs. 95,664/- being the dividend income was not to be included in the total income of the assessee. The Income-tax Officer rejected all the pleas taken by the assessee and disallowed the deductions claimed by the assessee as mentioned above. The Income-tax Officer also included the sum of Rs. 95,664/- in the total income of the assessee.
(2.) The assessee filed an appeal before the Appellate Assistant Commissioner who affirmed the order of the Income-tax Officer, though on slightly different grounds with which we are not concerned here. Thereafter the assessee filed an appeal before the Tribunal which gave a finding that under the facts and circumstances of the present case there was no transfer of equitable title in the shares to the assessee and, therefore, he was not entitled to any deduction of the interest paid by him on the capital amount which constituted the purchase money of the shares. The Tribunal further held that the interest paid was of a capital nature and did not fall within the ambit of S. 12 (2) of the Act. As regards the assessee's claim to the dividend income of Rs. 95,664/-, the Tribunal held that as the said income had been credited to the account of the assessee in terms of cl. (3) of the agreement dated February 5, 1948 it had not been actually earned by the assessee and the receipt of the dividend by the Bank was only taken into account for finalisation of the price. The Tribunal accordingly directed deletion of this amount from the total income of the assessee. As regards the third point, namely, the sum of Rs. 1,05,000/- which the assessee paid as damages to the Bank, the Tribunal held that as the assessee was not doing business exclusively in shares he was not entitled to set off the interest paid by him as revenue loss.
(3.) Thereafter the appellant moved the Tribunal for making a reference to the High Court and after hearing counsel for the parties the Tribunal referred the following questions for the opinion of the High Court: "(1) Whether on the facts and in the circumstances of the case the tribunal rightly rejected the assessee's claim for deduction of the interest payment of Rs. 2,04,744/- (2) Whether on the facts and in the circumstances of the case the tribunal rightly held that the revenue was not estopped from disallowing the claim for the deduction of the interest amount in view of the allowance of such claim in the past (3) Whether on the facts and in the circumstances of the case the tribunal rightly disallowed the loss of Rs. 1,05,000/- in respect of 7500 preference shares of the Dalmia Investment Company Ltd. (4) Whether on the facts and in the circumstances of the case the tribunal rightly held that the dividend amount of Rs. 95,664/- did not constitute the income of the assessee - Out of these questions, Question No. (2) has not been pressed by the appellant because it is well settled that there is no question of estoppel or res judicata in relation to the assessment of different years. Thus the only questions that were to be determined by the High Court were Questions Nos. (1), (3) and (4). The High Court agreed with the Tribunal that in the facts and circumstances of the case there was no transfer of equitable title of the shares to the assessee and, therefore, he was not entitled to claim deduction of Rs. 2,04,744/-. The finding of the Tribunal on Question No. (3) was also upheld and the High Court agreed that the loss of Rs. 1,05,000/- was rightly disallowed. On Question No. (4) the High Court, also agreed with the view of the Tribunal and held that this amount could not be included in the total income of the assessee. The assessee has come up to this Court, after obtaining special leave from this Court.;