SMT. PADMAVATI JAIKRISHNA versus ADDL. COMMISSIONER OF INCOME TAX, GUJARAT AHMEDABAD

Citation: [1987] 2 S.C.R. 1167 · Decided: 22-04-1987 · Supreme Court of India · Bench: R.S. PATHAK · Disposal: Dismissed

Judgment (excerpt)

SMT. PADMAVATI JAIKRISHNA 
A 
v. 
ADDL. COMMISSIONER OF INCOME .TAX. 
'"'f 
GUJARAT AHMEDABAD 
APRIL 22, 1987 
B 
(R.S. PATHAK, C.J. RANGANATH MISRA AND 
K.N. SINGH, JJ.] 
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Income Tax Act, 1961-Section 57(iii)-Deduction-Claim for-
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Expenditure incurred should be wholly and exclusively for purpose of 
earning income-Assessee to satisfy Income Tax Officer. 
c 
The assessee, assessed as an individual, derived income from 
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"other sources" in the shape of interest, dividends etc, Jn the asse~· 
ment year 1966-67 she claimed deduction of Rs,U,986 being interest 
paid on loans taken by her, under s. 57(iii). ~Hhe Income Tax Act, 1961. 
D 
The Income Tax Officer fe;>u~<l ~at out of the loans real investment was 
Rs.1,250 only. He disalluw~ the claim of Rs.10,275 on proportionate 
basis. 1'h':: Aepel~~~~ As~istamt Commissioner relying upon the ratio of 
\he. ~cisioo ii\ lttti Bhuriben Lallubhai v. Commissioner of Income-tax, 
~o.m#J,qy North Cutch and Saurashtra, [1956 ITR (XXIX) 543] dismis· 
li"d the appeal of the assessee. 
E 
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Before the Tribunal the assessee contended: (1) that expenditure 
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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 •ll re$pect of such loans should have been admitted and (2) 
,.J..) 
that the assessee instead of liquidating the investments which was 
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return-oriented, found it commercially expedient and viable to raise a 
loan Instead of disturbing the investments and, therefore, the claim 
~ became admissible. The '(ribunal rejecting the contentions and dismis-
sing 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. 
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On reference, the High Court held that at the relevant time it was 
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obligatory for the assessee to make the annuity deposit and the earning 
of ipterest through such deposit was merely incidental and that the 
portion of the loan was not intended to meet expenditure wholly ~md 
exclusively for the purpose of earning the income and, therefore, did 
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not come under s. 57(iii) of the Act. 
1167 
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B 
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1168 
SUPREME COUR'I; REPORTS 
[1987] 2 S.C.R. 
Dismissing the appeal of the assessee the Court, 
HELD:l. Unless the claim comes within the purview of s. 57(iii) 
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of the Income Tax Act, 1961 it· would not be admissible as a deduc-
tion. [1170C] 
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2. The ~est t~ apply is that the expenditure should be wholly and 
exclusively for the purpose of earning the income. [ 1172C] 
Eastern 'Investments Ltd. v. Commissioner of Income-tax, West 
~ 
Bengal, [1951) ITR 20 1 and Commissioner of Income-tax, West Bengal 
v. Rajendra'Prasad Moody. [1978) 115 ITR 519, followed. 
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3. In order that t,he claim for deduction could~ sustained, it was 
for the assessee to satisfy the Income Tax Officer that the loan, interest }-
fo 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-GJ 
4. The Income Tax Authorities as also the High Court have 
cl~arly 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 
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the purview ofs. 57(iii) of the Act. [1171H-1172A, D] 
... L.:. 
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 
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be expenditure laid out or expended wholly and exclusively for the 
purpose of earning income. So far as annuity depos~t is concerned, the 
Tribunal and the High Court have come to the right conclusion that the 
y 
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. [1172Fl ' · 
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·CIVIL APPELLATE JURISDICTION: Civil Appeal No. 65 of 
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1975. 
From the Judgment and Order dated 3.12.1973 of the Gujarat 
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High Court in I.T.R. No. 35of1972. 
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1170 
SUPREME COURT REPORTS 
(1987] 2 S.C.R. 
payment of interest to the extent of R

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