SUHAS CHANDRA SEN, J. - (1.) THE following question of law has been referred to us by the Tribunal at the instance of the Revenue: " Whether, on the facts and in the circumstances of the case and in view of the fact that no interest on the securities purchased by the assessee was due to it, the Tribunal was correct in law in holding that the interest paid on the moneys borrowed for the purchase of the said securities was allowable under s. 19(ii) of the IT Act, 1961 ? "
(2.) THE relevant assessment year is the asst. yr. 1962-63 for which the accounting period ended on December 31, 1961. In the course of assessment, the ITO disallowed a claim for deduction of interest on account of loans taken for purchasing certain securities floated by the Government of Orissa. This claim was ultimately upheld by the Tribunal. Mr. Naha, appearing on behalf of the Revenue, has contended that the interest paid on moneys borrowed for the purchase of the securities could not be allowed as deduction under s. 19(ii) of the IT Act, 1961, inasmuch as the assessee did not have any income chargeable under the head " Interest on securities ". There was no question of computation of any income under the head " Interest on securities " and, therefore, the question of claim for any deduction under that head did not arise. Mr. Naha relied on a judgment of the Punjab High Court in the case of Seth Ram Gopal Mohta vs. CTT (1966) 61 ITR 303 (Punj), in support of his proposition.
(3.) SEC . 18 makes " interest on securities " chargeable to tax. Sec. 19 provides, inter alia, " Subject to the provisions of s. 21, the income chargeable under the head 'Interest on securities' shall be computed after making the following deductions-- . ...... (ii) any interest payable on moneys borrowed for the purpose of investment in the securities by the assessee.";