- (1.) This appeal, by special leave, has been filed by the Revenue against the judgment of the Delhi High Court dated July 25, 1980 in I.T.C. No. 23 of 1980 whereby the High Court has dismissed the application filed by the Revenue under Section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'). The facts are in a narrow compass and may be stated as under.
(2.) The assessee had made investments in shares in industrial as well as non-industrial companies and for the purpose he had borrowed funds. In the assessment year 1972-73 the assessee has received Rs. 62,160/- as dividends on the said shares in the industrial as well as non-industrial companies. He had paid a sum of Rs. 55,197/- as interest on money borrowed for making investment in the shares. The amount received as dividend included Rs. 18,516/- received as dividend on the shares in Bharat Steel Tubes Ltd., an industrial company. In view of Section 80-K of the Act dividend on shares in an industrial company has to be deducted from the gross total income as defined in clause (5) of Section 80-B of the Act. The Income-tax Officer disallowed the deduction to the extent of Rs. 51,612/- out of the interest amount of Rs. 55,197/- paid by the assessee but he permitted deduction of Rs. 18,516/- under Section 80-K. The said order of the Income-tax Officer was upheld in appeal by the Appellate Assistant Commissioner but on further appeal, the Income-tax Appellate Tribunal (hereinafter referred to as 'the Tribunal') held that the amount of Rs. 51,612/- had been wrongly disallowed and should have been allowed. Since the Tribunal refused to make a reference, the Revenue moved the application in the High Court under Section 256 (2) for an order directing the Tribunal to refer the following question for opinion :- "Whether on the facts and in the circumstances of the case, the Tribunal was right in allowing the claim of interest amounting to Rs. 51,612/- paid on borrowed capital by the assessee for the purpose of shares when the dividend income therefrom was exempted u/S. 80-K of the Income-tax Act -
(3.) By the impugned judgment the High Court has held that in view of Section 57(iii) the amount of interest paid on borrowed capital used for earning income had to be allowed as deduction and the question sought to be referred was only academic in nature. The application filed by the Revenue was, therefore, dismissed.;