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2. In order to appreciate the background of the controversy between the parties which has given rise to the aforesaid reference, it is necessary to have a look at certain relevant facts :

The assessee's father expire somewhere in July, 1965. On his death, the assessee inherited assets worth Rs. 12,38,000 and liabilities worth Rs. 2,47,000 in respect of the borrowing from the Bank of India by the assessee's father. The bank liabilities represented overdraft taken by the assessee's father for the purpose of paying his tax liabilities. The assessee's father in his lifetime had paid interest on the overdrafts for four years. Out of the assets which included shares and buildings, the shares had been pledged by the father of the assessee with the Bank of India as security for the overdrafts for the relevant assessment years 1966-67, 1967-68, 1968-69 and 1969-70. The ITO did not allow the claim of the assessee to deduction of interest payment of the Bank of India from the income from assets inherited by him on the death of his father. The assessee's case before the ITO was that when the revenue was assessing the dividends from such shares which he had inherited from his father and when it was also assessing the rental income of the assessee from the property inherited by him, as a necessary corollary the assessee should be allowed a deduction of interest payment made by him on such liabilities. The ITO took the view that the assessee was not able to prove that the interest payment was for the purpose of investment, income from which was chargeable to tax.

5. The assessee submitted before the Tribunal that his father had expired on July 7, 1965. On his death, the assessee inherited gross book value assets worth Rs. 12.38 lakhs and liabilities worth Rs. 2.47 lakhs in respect of the borrowings from the Bank of India by the assessee's father. The bank liabilities represented overdrafts taken by the assessee's father for the purposes of paying his tax liabilities. The assessee's father in his lifetime had paid interest on the overdrafts for four years. Out of the assets which included shares and buildings, the shares had been pledged with the Bank of India as security for the overdrafts. The assessee contended that when the revenue was assessing the dividends from such shares and the rental income from properties inherited, as a necessary corollary the assessee should be allowed a deduction of the interest payment on such liabilities.

9. Mr. Raval, the learned advocate appearing for the revenue, on the other hand contended that the lower authorities had taken the correct view of the legal position when they turned down the disputed claim of the assessee.

10. In order to appreciate the real nature of the controversy between the parties it is necessary to keep in view certain proved and admitted facts which emerge from the record of this case.

11. The assessee's father who was the original assessee died on July 7, 1965. On his death, the assessee inherited various assets amounting to Rs. 12.38 lakhs from his father. The assets in their turn also brought liabilities to the assessee worth Rs. 2.47 lakhs. The assessee's father in order to meet the income-tax dues had in his lifetime borrowed certain amount from the Bank of India. The Bank of India granted overdraft facilities to the assessee's father. This borrowing from the Bank of India by the assessee's father amounted to Rs. 2.47 lakhs. In order to secure the overdraft account, the assessee's father had pledged with the Bank of India various shares which he was owning at the relevant time. When the assessee inherited these properties from his father he had also to meet with the liability which had accrued due on the inherited assets. The assessee was, therefore, obliged to pay interest to the Bank of India on the overdraft which his father had taken from the Bank of India. The dividend income which the assessee derived from the shares was sought to be brought to tax. At that stage, the assessee contended that during the concerned assessment years he had also paid interest to the Bank of India on the overdraft account. These amounts of interest which he had paid to the Bank of India were required to be deducted from the gross receipts in order to compute the real income earned by the assessee during the assessment years for the purpose of income-tax. This claim of the assessee has been turned down by the lower authorities. The short question which has been posed for our consideration is as to whether the assessee is entitled to get a deduction of interest payment made by him to the Bank of India from the income from the assets inherited by him on the death of his father so far as the relevant assessment years are concerned.

17. In this context it is also profitable to refer to the decision of the Privy Council in Rajah Bejoy Singh Dudhuria's case [1933] 1 ITR 135 (PC). In the aforesaid case before the Privy Council, the assessee succeeded to the family ancestral estate on the death of his father. Subsequently, his stepmother brought a suit for maintenance against him in which a consent decree was passed directing the assessee to make a monthly payment of a fixed sum to his step-mother and declaring that the maintenance was to be a charge on the ancestral estate in the hands of the assessee. In computing his income, the assessee claimed that the amounts paid by him to his step-mother under the decree should be excluded. It was held by the Privy Council that the assessee's liability under the decree did not fall within any of the exemptions or allowances conceded in ss. 7 to 12 of the Indian I. T. Act, 1922, but the sum paid by the assessee to his step-mother were not "income" of the assessee at all. The decree of the court by charging the appellant's whole resources with a specific payment to his step-mother had to that extent diverted his income form him and had directed it to his step-mother; to that extent what he received from her was not his income. It was not a case of the application by the appellant of part of his income in a particular way; it was rather the allocation of a sum out of his revenue before it became income in his hands. Lord Macmillan, delivering the opinion of their Lordships of the Privy Council, observed at p. 138.