- (1.) This appeal by certificate is directed against the judgment of the High Court of Gujarat. 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. 26,986/- being interest paid to Harivallabhdas Kalidas Estate on loans taken by her. The Income-tax Officer found that out of the loans real investment was of a sum of Rs. 1,250/- only. He disallowed the claim to the extent of Rs. 10,279/- on proportionate basis. According to him this claim could not be admitted under S. 57(iii) of the Income-tax Act of 1961.
(2.) Assessee's first appeal to the Appellate Assistant Commissioner was rejected. The Appellate Authority relied upon the ratio of the decision of the Bombay High Court in Bai Bhuriben Lallubhai v. Commr. of Income-tax, Bombay North, Cutch and Saurashtra, (1956) 29 ITR 543: (AIR 1956 Bom 41) and dismissed the appeal.
(3.) 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 payment 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 admissible deduction under S. 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 incidental. 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 S. 57(iii) of the Act.;