Appeal No 65 of 1975
From the Judgment and Order dated 312
1973 of the Gujarat High Court in ITR No 35 of 1972
1169 TA Ramachandran Mrs J Ramachandran and SC Ratelh for the Appellant
VS Desai and Ms A Subhashini for the Respondent
The Judgment of the Court was delivered by RANGANATH MISRA J
This appeal by certificate is di rected against the judgment of the High Court of Gujarat
Assessee is assessed as an individual and she derived income from other sources being in the shape of interest dividends etc
The relevant year of assessment is 1966 67
During this year assessee claimed deduction of Rs26986 being interest paid to Barivallabndas Kalidas Estate on loans taken by her
The Income tax Officer found that out of the loans real investment was of a sum of Rs 1250 only
He disallowed the claim to the extent of Rs 10275 on propor tionate basis
According to him this claim could not be admitted under section 57iii of the Income tax Act of 1961
Assessee s first appeal to the Appellate Assistant Commissioner was rejected
The Appellate Authority relied upon the ratio of the decision of the Bombay High Court in Bai Bhuriben Ballubhai vs Commissioner of Income tax Bombay North Cutch and Saurashtra
1956 ITR XXIX 543 and dis missed the appeal
In further appeal before the Tribunal the claim of the assessee was reiterated by contending that expenditure under the head of payment of income tax and wealth tax and annuity deposits should have been taken as revenue expenditure and the claim of interest in respect of such loans should have been admitted
It was further contended that the assessee instead of liquidating the investments which were return oriented found it commercially expedient and viable to raise a loan instead of disturbing the investments and therefore the claim became admissible in law
The Tribunal did not accept this contention and observed that the loans were taken for meeting her personal obligation like payment of taxes and deposit of annuity and these had nothing to do with the business
The Tribunal also relied upon the ratio of Bombay High Court decision referred to above
As the Tribunal dismissed the appeal assessee asked for the case to be stated to the High Court and the following question was referred for its opinion Whether on the facts and in the circumstances of the case 1170 payment of interest to the extent of Rs 1027 was not an admissible deduction under section 57iii of the Incometax Act The High Court referred to various authorities and decided against the assessee by concluding that at the relevant time it was obligatory for the assessee to make the annuity deposit and the earning of interest through such deposit was merely incidental
The High Court further found that the portion of the loan was not intended to meet expenditure wholly and exclusively for the purpose of earning the income and therefore did not come under section 57iii of the Act
It is not disputed by Mr Ramchandran for the assessee that unless the claim comes within the purview of section 57iii of the Act it would not be admissible as a deduc tion
That section as far as relevant provides The income chargeable under the head income from other sources  shall be computed after making the following deductions namely i ii  iii any other expenditure not being in the nature of capital expenditure laid out or expended wholly and exclusively for the pur pose of making or earning such income P r ovided       
E x p l a n a t ion       
In order that the claim for the deduction could be sustained it was for the assessee to satisfy the Income tax Officer that the loan interest in respect of which is claimed as deduction was laid out or expended wholly and exclusively for earning the income from out of which the deduction was claimed
There is no dispute that the provi sion of section 57 of the Act corresponds to section 122 of the Act of 1922
Dealing with a claim under section 122 of the 1922 Act this Court in Eastern Investments Ltd vs Commissioner of Income tax West Bengal  1 summarised the position of law thus On a full review of the facts it is clear that this transaction was voluntarily entered into in order indirectly to facilitate 1171 the carrying on of the business of the company and was made on the ground of commercial expediency
It therefore falls within the purview of Section 122 of the Income tax Act
1922 before its amendment    This being an investment company if it borrowed money and utilised the same for its investments on which it earned income
the interest paid by it on the loans will clearly be a permissible deduction under section 122 of the Income tax Act
 In Commissioner of Income tax West Bengal vs Rajendra Prasad Moody 19 this Court observed The determination of the question before us turns on the true interpretation of section 57iii and it would therefore
be convenient to refer to that section but before we do so we may point out that section 57iii occurs in a fasciculus of sections under the heading F Income from other sources
Section 56 which is the first in this group of sections enacts in sub section 1 that specified in section 14 Items A to B shall be chargeable to tax under the head Income from other sources and sub section 2 includes in such income various items one of which is divi dends
Dividend on shares is thus income chargeable under the head Income from other sources
Section 57 provides for certain deductions to be made in computing the income chargeable under the head Income from other sources and one of such deductions is that set out in clause iii
which reads as fol lows     The expenditure to be deductible under section 57iii must be laid out or expended wholly and excluSively for the pur pose of making or earning such income In the said decision this Court clearly indi cated that It is the purpose of the expenditure that is relevant in determining the applicability of section 57iii and that purpose must be making or earning of income
 The taxing authorities as also the High Court have clearly recorded a 1172 factual finding facts that the expenditure in this case was to meet the personal liability of payment of income tax and wealth tax and annuity
From the order of the Tribunal as also the judgment of the High Court it appears that the assessee had taken the stand that even if the claim relating to income tax and wealth tax was not admissible
that part of the claim relatable to annuity deposit should have been admitted as it fetched interest
We are inclined to agree with the High Court that so far as meeting the liability of income tax and wealth tax is concerned it was indeed a personal one and payment thereof cannot at all be said to be expenditure laid out or expended wholly and exclusively for the purpose of earning income
So far as annuity deposit is concerned the Tribunal and the High Court have come to the right conclusion that the dominant purpose was not to earn income by way of interest but to meet the statutory liabili ty of making the deposit
The test to apply is that the expenditure should be wholly and exclusively for the purpose of earning the income
The fact finding authorities have come to the conclusion that no part of the expenditure came within the purview of section 57iii of the Act
Mr Ramchandran then maintained that even if there was an indirect link between the expenditure and the income earned the claim would be admissible and relied upon the observations of Bose
J in Eastern Investments Case
No attempt has been made by the assessee to point out before the taxing authorities or even before the High Court by placing the necessary facts to justify such a claim
On mere assumptions such a point cannot be allowed to be raised here for consideration
In fact unless the loan is incurred for meeting the liability connected with the sources itself it would ordinarily be difficult to entertain the claims for deduction
This appeal has to fail and the order of the High Court has to be affirmed
We accordingly dismiss the appeal but leave the parties to bear their respective costs
APJ Appeal dismissed


Summary:
The assessee assessed as an individual derived income from other sources in the shape of interest dividends etc
In the assessment year 1966 67 she claimed deduction of Rs26986 being interest paid on loans taken by her under section 57iii of the Income Tax Act 1961
The income Tax Officer found that out of the loans real investment was Rs1250 only
He disallowed the claim of Rs10275 on proportionate basis
The Appellate Assistant Commissioner relying upon the ratio of the decision in Bai Bhuriben Lallubhai vs Commissioner of Income tax Bombay North Cutch and Saurashtra 1956 ITR XXIX 543 dismissed the appeal of the assessee
Before the Tribunal the assessee contended 1 that expenditure under the head of payment of income tax and wealth tax and annuity deposits should have been taken as revenue expenditure and the claim of interest in respect of such loans should have been admitted and 2 that the asses see instead of liquidating the investments which was return oriented found it commercially expedient and viable to raise a loan instead of disturbing the investments and therefore the claim became admissible
The Tribunal reject ing the contentions and dismissing the appeal observed that the loans were taken for meeting her personal obligation like payment of taxes and deposit of annuity and these had nothing to do with the business
On reference the High Court held that at the relevant time it was obligatory for the assessee to make the annuity deposit and the earning of interest through such deposit was merely incidental and that the portion of the loan was not intended to meet expenditure wholly and exclusively for the purpose of earning the income and
therefore
did not come under section 57iii of the Act
1168 Dismissing the appeal of the assessee the Court
HELD 1
Unless the claim comes within the purview of section 57iii of the Income Tax Act
1961 it would not be admissi ble as a deduction
1170C 2
The test to apply is that the expenditure should be wholly and exclusively for the purpose of earning the in come
1172C Eastern Investments Ltd vs Commissioner of income tax West Bengal and Commissioner of Income tax West Bengal vs RaJendra Prasad Moody  followed
In order that the claim for deduction could be sus tained it was for the assessee to satisfy the Income Tax Officer that the loan interest in respect of which is claimed as deduction was laid out or expended wholly and exclusively for earning the income from out of which the deduction was claimed
1170F G 4
The Income Tax Authorities as also the High Court have clearly recorded a factual finding of facts that the expenditure in this case was to meet the personal liability of payment of income tax and wealth tax and annuity and that no part of the expenditure came within the purview ors
57ii of the Act
1171H 1172A D 5
This Court is inclined to agree with the High Court that so far as meeting the liability of income tax and wealth tax is concerned it was indeed a personal one and payment thereof cannot at all be said to be expenditure laid out or expended wholly and exclusively for the purpose of earning income
So far as annuity deposit is concerned
the Tribunal and the High Court have come to the right conclu sion that the dominant purpose was not to earn income by way of interest but to meet the statutory liability of making the deposit
1172B C 6
Unless the loan is incurred for meeting the liability connected with the sources itself it would ordinarily be difficult to entertain the claims for deduction
1172F