Interest expenditure: Section 57(iii): Money borrowed for investing in shares in company owning immovable property: Dividend not received: Interest not disallowable on ground that investment was not made for purpose of earning dividend:

The assessee borrowed money for investment in shares of a company P owning an immovable property the value of which was much higher than the book value. The assessee had not received dividend. The assessee’s claim for deduction of interest on borrowed funds u/s. 57(iii) of the Income-tax Act, was disallowed by the Assessing Officer on the ground that the investment could not be said to have been made for earning dividend. The Tribunal upheld the disallowance.

On appeal by the assessee, the Calcutta High Court reversed the decision of the Tribunal and held as under:

“i) Even though the language of section 37(1) of the Income-tax Act, 1961, is a little wider than that of section 57(iii), that cannot 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.

ii) There was no reason why a proper expenditure should have been disallowed only because the investment was not made for the purpose of earning dividend. There is no finding that the investment was made otherwise than for the purpose of making an income. The Tribunal and the Assessing Officer were wrong in disallowing the expenditure.”