- (1.) This appeal is directed against a judgment and order dated March 31, 2003, passed by the learned Income-tax Appellate Tribunal. Aggrieved by the order, the assessee has come up in appeal. The first question formulated at the time of admission of the appeal is as follows: (1) Whether the Tribunal was justified in law in holding that the appellant was not entitled to deduction under section 57(iii) of the Income-tax Act, 1961, in respect of the interest of Rs. 13,49,356 incurred on borrowed funds utilised for making investment in shares on which no dividend was received and the purported findings of the Tribunal in that behalf are arbitrary, unreasonable and perverse?
(2.) Mr. Khaitan, learned senior advocate appearing for the appellant-assessee, submitted that the question is covered by a judgment of the apex court in the case of CIT v. Rajendra Prasad Moody, 1978 115 ITR 519(SC). He added that the Tribunal did, in fact, notice the judgment, but erred in understanding the true nature and purport thereof. In the aforesaid judgment, the apex court held as follows (page 523): We fail to appreciate how expenditure which is otherwise a proper expenditure can cease to be such merely because there is no receipt of income. Whatever is a proper outgoing by way of expenditure must be debited irrespective of whether there is receipt of income or not. That is the plain requirement of proper accounting and the interpretation of section 57(iii) cannot be different. The deduction of the expenditure cannot, in the circumstances, be held to be conditional upon the making or earning of the income. It is true that the language of section 37(1) is a little wider than that of section 57(iii), but we do not see how that can make any difference in the true interpretation of section 57(iii). The language of section 57(iii) is clear and unambiguous and it has to be construed according to its plain natural meaning and merely because a slightly wider phraseology is employed in another section which may take in something more, it does not mean that section 57(iii) should be given a narrow and constricted meaning not warranted by the language of the section and, in fact, contrary to such language.
(3.) This view which we are taking is clearly supported by the observations of Lord Thankerton in Hughes (Inspector of Taxes) v. Bank of New Zealand,1938 6 ITR 636(HL), where the learned Law Lord said (page 644): Expenditure in course of the trade which is unremunerative is none the less a proper deduction, if wholly and exclusively made for the purposes of the trade. It does not require the presence of a receipt on the credit side to justify the deduction of an expense.;