PATHAK, J. - (1.) THIS reference has been made under S. 66(1), Indian IT Act, 1922, by the Tribunal at the instance of the assessee in respect of the asst. year 1960 -61 (the relevant previous year being the financial year ending March 31, 1960), and the question of law referred is : "Whether, on the facts and in the circumstances of the case, the assessee's claim to deduct the interest payable on a loan incurred for acquiring an asset no more held by it was legally maintainable ?"
(2.) THE connected reference concerns the same assessee and in respect of the asst. year 1961 -62. The questions of law referred are : "1. Whether, on the facts and in the circumstances of the case, the assessee's claim to deduct the interest payable on a loan incurred in acquiring an asset no more held by it was legally maintainable ? 2. Whether, on the facts and in the circumstances of the case, the legal expenditure amounting to Rs. 2,970 incurred by the assessee in defending a suit relating to an asset which was not held by the assessee during the relevant period was deductible under the provisions of S. 12 of the IT Act, 1922 ?" The assessee is an HUF. It owned a large number of shares of the Lord Krishna Sugar Mills Ltd. In 1951, the assessee acquired 19,250 shares of that company from Seth Devi Chand. Out of the purchase consideration amounting to Rs. 4,37,500, a sum of Rs. 2,10,000 was paid by the assessee. The unpaid balance remained at Rs. 2,27,500 on March 31, 1959. This amount was treated as money due to Seth Devi Chand and the interest payable thereon was calculated by the assessee at Rs. 10,589 for the previous year relevant to the asst. year 1960 -61 and at the same figure for the previous year relevant to the asst. year 1961 -62. In assessment proceedings for each of the asst. yr.s 1960 -61 and 1961 -62 the assessee claimed a deduction of Rs. 10,589 against its dividend income as representing the interest payable by it to Seth Devi Chand. Earlier, the HUF property belonging to the assessee had suffered partial partition, once in 1953 and again in 1959. As a result, the entire block of 19,250 shares purchased in 1951 ceased to form part of the assets of the assessee. Other shares of the same company had similarly ceased to belong to the assessee. That left a balance of 51,524 shares representing the holding of the assessee in that company. The ITO took the view that, since the interest was directly related to the distinctive shares purchased from Devi Chand, and they were no longer held by the assessee, the claim to deduction could not be allowed. The assessee appealed. The AAC held that the assessee was following the cash basis of accounting in respect of dividends and interest on investments and, as the interest was only payable and had not yet been paid, the deduction could not be allowed. The assessee then appealed to the Tribunal. The Tribunal accepted the contention of the assessee that it maintained its accounts on the mercantile basis and, therefore, did not agree with the ground upon which the AAC disallowed the claim. But it took the view that the block of 19,250 shares purchased from Seth Devi Chand in 1951 constituted a distinct source of income, and that as that block of shares was not owned by the assessee during the previous years relevant to the asst. yrs. 1960 -61 and 1961 - 62, it could not be said that the interest represented expenditure incurred for the purpose of making or earning income from those shares. Construing and so applying the provisions of S. 12(2) of the Act, it endorsed the rejection of the assessee's claim. In this respect, therefore, a similar question has been referred by the Tribunal in each of the two references before us. We think the point raised by these questions can conveniently be disposed of first. Sec. 6, Indian IT Act, 1922, enumerates the heads of income chargeable to income -tax. One of the heads is "income from other sources". Sub -s. (1) of S. 12 provides : "(1) The tax shall be payable by an assessee under the head 'income from other sources' in respect of income, profits and gains of every kind which may be included in his total income (if not included under any of the preceding heads)". It is clear that the head contemplates income, profits and gains of different kinds and, therefore, from different sources. The expression "income from other sources" itself indicates that more than one source of income is contemplated. What is a "source of income" ? The expression has been used in several places in the Act. In S. 2 (11) the definition of "previous year" envisages a different previous year in respect of each separate source of income. Sec. 4, which is concerned with the application of the Act, declares that the total income of a person includes all profits and gains, from whatever source derived, which falls within the categories set out there. And so on. The first authoritative judicial pronouncement appears in Rhodesia Metals Ltd. (Liquidator) vs. Commr. of Taxes (1941) 9 ITR (Suppl.) 45 (PC), where the Privy Council approved of the passage quoted by Mr. Justice de Villiers from Mr. Ingram's work on income -tax : "Source means not a legal concept but something which a practical man would regard as a real source of income ; the ascertaining of the actual source is a practical hard matter of fact."
(3.) THIS quotation was referred to by a Full Bench of our Court in Rani Amrit Kunwar vs. CIT (1946) 14 ITR 561 (All)(FB). In that case the learned Judges considered that an agreement or an order of the Court requiring the payment of a periodical sum could be regarded as a source of income. In the case of income from business, which is a separate head under S. 6, each business has been treated as a distinct source of income. The decision of the Madras High Court in CIT vs. E. K. R. Savumiamurthy (1946) 14 ITR 185 (Mad) proceeds on that basis. In CIT vs. Lady Kanchanbai (1962) 44 ITR 242 (MP), the Madhya Pradesh High Court observed that each branch of a business could be described as a distinct source of income. A source of income, therefore, may be described as the spring or fount from which a clearly defined channel of income flows. It is that which by its nature and incidents constitutes a distinct and separate origin of income, capable of consideration as such in isolation from other sources of income, and which by the manner of dealing adopted by the assessee can be treated so.;