- (1.) In this assessees appeal the only issues which requires to be decided is whether the interest on borrowed monies utilised for purchase of shares can be claimed as a deduction under S. 57(iii) of the IT Act while computing dividend income under the head Income from other Sources.
(2.) The brief facts are that the assessee earned dividend income of Rs. 16,030 from few companies. The assessee also purchased 40,000 shares in M/s. Universal Paper Mills Ltd. which he purchased from out of monies borrowed from outside agencies. The assessee claimed a sum of Rs. 62,819 as interest from the dividend income which is to be assessed under the head Income from other Sources. The Assessing officer negatived the claim of the assessee on the ground that the motive of the assessee was to acquire controlling interest in M/s. Universal Paper Mills Ltd. and that the said company was financially not sound and viable. The Assessing Officer examined the accounts and assessment records of M/s. Universal Paper Mills Ltd. to find out the financial position of the company. It is also observed by the Assessing Officer that immediately after acquiring the share the brother of the assessee was appointed as Managing Director of that company. Therefore, the claim of interest for deduction while computing the dividend income was not allowable and he, therefore, did not allow. Not being satisfied with the decision of the Assessing Officer the assessee carried the matter before the CIT(A) who while dismissing the appeal of the assessee agreed with the reasoning given by the Assessing Officer for not allowing interest claim from dividend income.
(3.) It is against this order of the CIT(A) the assessee being aggrieved has flied second appeal before us. The counsel for the assessee, Sri Pranab Pal contends that the assessee had rightly claimed deduction of interest from the dividend income and the same had the sanction of S. 57(iii) of the IT Act. The Assessing Officer was wholly unjustified, says assessees counsel, in disallowing the claim on the ground of motive of the assessee namely acquiring controlling interest of the company. According to the counsel for the assessee whether or not there is income from dividend which is to be assessed under the head Income from other sources the claim is allowable. In support of his contention the counsel for the assessee has relied on the decision of the Supreme Court in the case of CIT vs. Rajendra Prasad Moody and CIT vs . Raghunandan Prasad Moody, 1978 115 ITR 519 and of the Calcutta High Court in the case of CIT vs . Model Manufacturing Co. (P) Ltd., 1980 122 ITR 767 The Revenues representative while strongly relying on the order of the authorities below submitted that the assessee had no right to claim deduction of the interest paid on the monies borrowed for acquiring shares in M/s. Universal Paper Mills Ltd. particularly when no dividend has been earned be the assessee from that company. According the learned Departmental Representative a plain reading of S. 57(iii) clearly lays down that the deduction of expenditure is to be allowed only if the same is laid out or expended wholly and exclusively for the purpose of making or earning such income. As there was no income to the assessee from M/s. Universal Paper Mills Ltd. interest cannot be allowed as deduction from the dividend income earned from other companies. Thus, the Departmental Representative submits that the Assessing Officer and the CIT(A) did not commit any error in negativing the claim of the assessee towards the interest payment of Rs. 62,819.;