COMMISIONER OF INCOME TAX v. INDUMATI RATANLAL — 1967 DIGILAW 123 (GUJ)

B. J. DIVAN, P. N. BHAGWATI, J. ( 1 ) THIS Reference arises out of an assessment made upon the assessee as an individual for the assessment year 1962-63 the relevant account year being the calendar year 1961. The assessees husband Ratanlal died on 17th January 1957 leaving a will under which he bequeathed one half of his estate to the assessee and the other half to his minor son Pankaj. The estate consisted mostly of shares and securities but there was also an immovable property situate in Ahmedabad which belonged to the estate. Since the estate passed on the death of Ratanlal estate duty became payable on the principal value of the estate under the provisions of the Estate Duty Act and such estate duty came to Rs. 2 78 979 ps. In order to pay this estate duty the assessee on behalf of herself and her minor son Pankaj raised an aggregate loan of Rs. 2 78 0 from the Bank of India Ltd. and the Central Bank of India Ltd. and the estate duty was paid in different amounts on diverse dates between 4th December 1957 and 4th January 1961. A part of the loan was repaid by the assessee and her son out of the income of the estate received under the will and at the commencement of the relevant previous year the amount of the loan due from the assessee and her son to the Banks was Rs. 1 98 22 and this amount was further reduced to Rs. 1 95 22 at the close of the relevant previous year. Now admittedly the amount of the loan during the relevant previous year included a withdrawal of Rs. 60 889 for the construction of an immovable property but the construction of the immovable property was not completed and no income was received from the immovable property in the relevant previous year. The income of the assessee in the relevant previous year consisted principally of dividends from shares and a small amount by way of interest and income from immovable property and admittedly this entire income was derived from the properties received by the assessee under the will of her husband. The assessee in the course of her assessment to income-tax for the assessment year 1962-63 claimed to deduct In the computation of her assessable income Rs. The assessee in the course of her assessment to income-tax for the assessment year 1962-63 claimed to deduct In the computation of her assessable income Rs. 15 307 being one half of the interest paid to the Banks on moneys borrowed and utilised in payment of estate duty. The claim was founded on sec. 57 (iii) of the Income-tax Act 1961 corresponding to sec. 12 (2) of the Income-tax Act 1922 The Income-tax Officer and the Appellate Assistant Commissioner disallowed the claim but on appeal the Tribunal held that the claim was well-founded and allowed the deduction. Hence the present Reference at the instance of the Commissioner. ( 2 ) SINCE the claim of the assessee for deduction is based on sec. 57 (iii) it is necessary first to look at the section itself. Sec. 57 (iii) is substantially in the same terms as sec. 12 (2) of the old Act and therefore the decisions on the construction of sec. 12 (2) must also govern the construction of sec. 57 (iii ). Sec. 57 (iii) provides that income from other sources shall be computed after making allowance for any expenditure laid out or expended wholly and exclusively for the purpose of making or earning such income. The deduction that is permissible under sec. 57 (iii) is an expenditure laid out or expended wholly and exclusively for the purpose of making or earning the income which is subjected to tax. Therefore in order to decide whether an expenditure is a permissible deduction under sec. 57 (iii) we have to examine the nature of the expenditure. The purpose for which the expenditure is incurred must be in order to earn the income and here we must not confuse purpose with motive. What sec. 57 (iii) emphasizes is the purpose for which the expenditure is incurred and the word purpose should not be equated with the motive for the transaction. The motive which may have operated on the mind of the assessee in making the expenditure is wholly irrelevant. See Bai Bhuriben Lallubhai v. Commissioner of Income-tax (1956) 29 I. T. R. 543 and Ormerods (India) Private Ltd. v. Commissioner of Income-tax (1959) 36 I. T. R. 399. The expenditure in order to fall within sec. 57 (iii) must therefore be incurred wholly and exclusively for the purpose of making or earning the income sought to be assessed. See Bai Bhuriben Lallubhai v. Commissioner of Income-tax (1956) 29 I. T. R. 543 and Ormerods (India) Private Ltd. v. Commissioner of Income-tax (1959) 36 I. T. R. 399. The expenditure in order to fall within sec. 57 (iii) must therefore be incurred wholly and exclusively for the purpose of making or earning the income sought to be assessed. There must be a connection between the expenditure and the earning of the income. The connection may be direct or it may even be indirect. But howsoever indirect the connection may be there must be a connection or nexus between the expenditure incurred and the income earned. This is the test which we must apply to the facts of the case and applying the test we must see whether the expenditure incurred by the assessee in payment of interest to the Banks on the moneys borrowed for payment of estate duty has any connection direct or indirect with the income earned by her from the shares received under the will of her husband. ( 3 ) THE argument of the Revenue was that the liability for payment of estate duty was a personal liability of the assessee and the moneys were borrowed by her to discharge such personal liability and there was accordingly no connection direct or indirect between the borrowing of the moneys and the earning of income from shares received by her under the will of her husband. The purpose of borrowing moneys and payment of interest thereon was it was contended on behalf of the Revenue to discharge the personal liability of the assessee for payment of estate duty and this purpose had no connection whatever with the income earned by the assessee on the shares. The purpose of borrowing moneys and payment of interest thereon was it was contended on behalf of the Revenue to discharge the personal liability of the assessee for payment of estate duty and this purpose had no connection whatever with the income earned by the assessee on the shares. The analogy of moneys borrowed for payment of income-tax was invoked on behalf of the Revenue and it was urged relying on two decisions one a decision of the Bombay High Court in Bai Bhuriben Lallubhai v. Commissioner of Income-tax (supra) and the other a decision of the Calcutta High Court in Mannalal Ratanlal v. Commissioner of Income-tax (1965) 58 I. T. R. 84 that just as payment of interest on moneys borrowed for payment of income-tax is not regarded as expenditure incurred for the purpose of earning income from income producing assets belonging to the assessee equally on a parity of reasoning payment of interest on moneys borrowed for payment of estate duty cannot be regarded as expenditure of like nature and in this connection strong reliance was also placed on certain observations of the Supreme Court in Commissioner of Income-tax v. Malayalam Plantations Limited (1964) 53 I. T. R. 140. We shall presently refer to these decisions but before we do so let us first examine the argument on principle. ( 4 ) THE argument of the Revenue was founded on the premise that the liability for payment of estate duty was a personal liability of the assessee of the same nature as the liability for Income-tax but the validity of this premise was disputed on behalf of the assessee and it was contended that the liability for payment of estate duty was not a personal liability of the assessee but was a liability of the estate resolved by the assessee. The first question which therefore arises for consideration on the argument of the Revenue is as to the nature of the liability of the assessee for payment of estate duty and that calls for a consideration of the Estate Duty Act 1953 Sec. 2 (12) of the Act defines legal representative to mean a person who in law represents the estate of a deceased person and includes (i) an executor (ii) as regards any obligation under the Act any person who takes possession of or intermeddles with the estate of a deceased person or any part thereof and (iii) where the deceased was a coparcener of a Hindu family. the manager for the time being of the family. Sec. 5 which is the charging section provides that in the case of every person dying after the commencement of the Act there shall subject to certain exceptions which are immaterial be levied and paid upon the principal value of all property settled or not settled which passes on the death of such person a duty called estate duty at the rates fixed in accordance with sec. 35. Now though the estate duty is levied upon the principal value of the property passing on the death of the deceased it has to be paid by some body: some person has to be made liable for payment of it and that is done by sec. 53 sub-sec. (1 ). Sec. 53 sub-sec. (1) lays down who shall be liable for payment of estate duty to the State and according to that sub-section where any property passes on the death of the deceased (a) every legal representative to whom such property so passes for any beneficial interest in poandsession or in whom any interest in the property so passing is at any time vested (b) every trustee guardian committee or other person in whom any interest in the property so passing or the management thereof is at any time vested and (c) every person in whom any interest in the property so passing is vested in possession by alienation or other derivative title shall be accountable for the whole of the estate duty on the property passing on the death. Sec. 53 sub-sec. Sec. 53 sub-sec. (5) provides that where two or more persons are accountable for estate duty in respect of any property passing on the death of the deceased their liability shall be joint and several. But there is a limitation on the liability of every person accountable for estate duty and that limitation is that such person shall not be liable for any duty in excess of the assets of the deceased which are actually received by him or which but for his own neglect or default he might have received. The liability of every accountable person is thus a personal liability though it is limited in extent to the assets of the deceased actually or constructively received by him. Qualitatively it is a personal liability and not a liability payable only out of the assets of the deceased: the assets of the deceased actually or constructively received merely constitute the limit of the liability. ( 5 ) BUT apart from this personal liability of every accountable person a charge is also created on the movable and immovable property passing on the death of the deceased to the extent set out in sec. 74. Sec. 74 sub-sec. (1) provides that subject to the provisions of sec. 19 (which relates to the collection and incidence of duty under sec. 17 in respect of controlled companies) the estate duty payable in respect of property movable or immovable passing on the death of the deceased shall be a first charge on the immovable property so passing in whomsoever it may vest on his death after the debts and encumbrances allowable under Part VI. So far as movable property passing on the death is concerned sec. 74 sub-sec. (2) says that a rateable part of the estate duty on an estate in proportion to the value of any beneficial interest in possession in movable property which passes to any person (other than the legal representative of the deceased) on the death of the deceased shall be a first charge on such interest. There is thus a charge on movable property also as in the case of immovable property but the charge extends rateably in proportion to the value of the beneficial interest in possession to the person against whom the charge is claimed provided of course he is not a legal representative of the deceased. There is thus a charge on movable property also as in the case of immovable property but the charge extends rateably in proportion to the value of the beneficial interest in possession to the person against whom the charge is claimed provided of course he is not a legal representative of the deceased. If the person to whom the movable property passes for a beneficial interest in possession is a legal representative of the deceased there is no charge and the liability of the legal representative as an accountable person remains a personal liability. ( 6 ) IF therefore the assessee was a legal representative of her deceased husband at the date when she paid the estate duty on behalf of herself and her minor son with moneys borrowed from the Banks there would be to charge at that date on the shares passing to her for a beneficial interest in possession and her liability would be purely a personal liability as an accountable person. But if on the other hand the assessee did not at that date occupy the character of a legal representative of her deceased husband the shares passing to her for a beneficial interest in possession would be subject to a first charge for a rateable part of the estate duty in proportion to her beneficial interest in possession. The borrowing of the moneys in the former case would be merely for the purpose of discharging a personal liability of the assessee whereas in the latter case it would be for the purpose of clearing a first charge on the shares to the extent of a rateable part of the estate duty. The question is: would it make any difference to the allowability of the expenditure incurred in payment of interest on the borrowed moneys whether the case falls within the former category or the latter ? The question is: would it make any difference to the allowability of the expenditure incurred in payment of interest on the borrowed moneys whether the case falls within the former category or the latter ? ( 7 ) THE argument of the assessee was that even if the moneys were borrowed by her for the purpose of discharging a purely personal liability as an accountable person interest paid on borrowed moneys was expenditure incurred for the purpose of earning dividend on the shares received by her under the will of her deceased husband and the reasoning on which the argument proceeded was that if moneys had not been borrowed the assessee would have had to sell some of the shares for payment of estate duty-since she had no other moneys of her own and in that event she would have lost the dividend on those shares and it was for the purpose of earning such dividend that moneys were borrowed and interest paid by her. Now this reasoning does prima facie appear to be attractive but it is fallacious in that it confuses the purpose of the borrowing with the motive. It may be that the assessees motive in borrowing moneys for payment of estate duty was to save the shares and dividend accruing from them but that is not a relevant consideration. What we are concerned with for the purpose of sec. 57 (iii) is not the motive but purpose of the borrowing and we must see what was the purpose for which the moneys were borrowed by the assessee. It is undoubtedly true that if moneys had not been borrowed by the assessee but the assessee had chosen to sell the shares and pay the estate duty out of the sale proceeds her income from dividend would have been reduced but it does not therefore follow that the purpose for which she borrowed moneys was to maintain or preserve the shares and help her to earn dividend on the shares. The moneys were borrowed by the assessee in order to discharge her personal liability and this purpose had obviously no connection direct or indirect with the earning of dividend on the shares. The moneys were borrowed by the assessee in order to discharge her personal liability and this purpose had obviously no connection direct or indirect with the earning of dividend on the shares. As a matter of fact apart from shares the deceased husband of the assessee also left an immovable property and if the argument of the assessee were valid it could equally be said that the purpose of borrowing moneys was to earn Income from the immovable property for if moneys had not been borrowed the assessee would have had to sell the immovable property and that would have caused loss of income from the immovable property. On this argument what would be the purpose of borrowing moneys Would it be to earn dividend on the shares or to earn income from the immovable property or if there were any other income producing asset of the assessee to earn income from such asset The question clearly exposes the fallacy of the argument and show that there is no connection direct or indirect between the borrowing of the moneys and the earning of the income ( 8 ) IF the argument of the assessee were pressed to its logical conclusion the result would be that whenever moneys are borrowed for payment of any liability it would always be possible to say save in the rare case where moneys sufficient to meet the liability are lying idle with the assessee without earning any interest that if the moneys had not been borrowed some income producing asset of the assessee which would include even cash lying on interest would have had to be sold or realised and that would have meant loss of income and therefore interest paid on borrowed moneys is for the purpose of earning such income and is deductible against it. Even payment of interest on moneys borrowed for discharge of income-tax liability would be a permissible deduction. But this conclusion is plainly contrary to the decision of the Bombay High Court in Bai Bhuriben Lallubhai v. Commissioner of Income-tax (supra ). The question which arose for decision in this case was whether interest paid by the assessee on moneys borrowed inter alia for the purpose of payment of advance tax was deductible as an allowable item of expenditure under sec. 12 (2 ). The question which arose for decision in this case was whether interest paid by the assessee on moneys borrowed inter alia for the purpose of payment of advance tax was deductible as an allowable item of expenditure under sec. 12 (2 ). the argument of the assessee was the same as we have here before us namely that if she had not borrowed the moneys she would have had to liquidate her fixed deposit which was earning interest and that would have meant loss of interest on the fixed deposit and therefore interest paid on borrowed moneys was for the purpose of earning interest on the fixed deposit. But this argument was rejected by the Bombay High Court in the following words :. . . . THERE must be a connection or a nexus between the expenditure incurred and the income earned. If we apply this test to the facts of this case it is clear that the expenditure incurred by the assessee which she claims as a deduction under sub-sec. (2) has no connection whatsoever whether direct or indirect with the income she has earned on her fixed deposit. . . . It cannot be said that if she had not borrowed the money in order to pay. . . . the advance tax she would have lost the interest on too fixed deposit. The interest would have continued and the fixed deposit would have been maintained if she. . . had not paid advance tax. These observations which are binding upon us afford a complete answer to the argument of the assessee. ( 9 ) THE same view we find has also been taken by the Calcutta High Court in Mannalal Ratanlal v. Commissioner of Income-tax (supra ). There the moneys were borrowed for payment of income-tax liability of the previous years and the assessee claimed to deduct interest paid on the borrowed moneys. The assessee contended that if he had not borrowed the moneys he would have been compelled to liquidate part of his income yielding assets and the borrowing was therefore for the purpose of maintaining income yielding assets and there was a direct or at any rate indirect connection between the income and the expenditure. It was the same contention as in the present case and the Calcutta High Court rejected it summarily in a few words. It was the same contention as in the present case and the Calcutta High Court rejected it summarily in a few words. ( 10 ) THE decision of the Supreme Court in Commissioner of Incometax v. Malayalam Plantations Ltd. (supra) also points in the same direction. That was a case which related to payment of estate duty under sec. 84 of the Estate Duty Act by a resident Company incorporated outside India on the death of shareholders not domiciled in India and the question was whether the amounts paid by way of estate duty were deductible under sec. 10 (2) (xv) as expenditure incurred wholly and exclusively for the purpose of the business of the Company. The Supreme Court held that though the amounts paid by way of estate duty were expenditure they could not be said to be laid out or expended wholly and exclusively for the purpose of the business of the assessee. Subba Rao J. as he then was speaking on behalf of the Supreme Court said:-THE payments have nothing to do with the conduct of the business the fact that on his default if any in the payment of the dues the revenue may realise the amount from the business assets is a consequence of the default of the assessee in not discharging his statutory obligation but it does not make expenditure any the more expenditure incurred in the conduct of the business. It is manifest that the amounts in question were paid by assessee as a statutory agent to discharge a statutory duty unconnected with the business though the occasion for the imposition arose because of the territorial nexus afforded by the accident of its doing business in India. On a parity of reasoning we must reject the argument that if the estate duty had not been paid by the assessee by borrowing moneys the revenue might have realised the amount of the estate duty from the shares or the shares might have had to be sold for payment of estate duty and therefore payment of interest on borrowed moneys was for the purpose of earning dividend on the shares. ( 11 ) THE assessee however contended that there was a difference between a case of borrowing of moneys for payment of income-tax liability and a case of borrowing of moneys for payment of estate duty. ( 11 ) THE assessee however contended that there was a difference between a case of borrowing of moneys for payment of income-tax liability and a case of borrowing of moneys for payment of estate duty. The argument was that whereas in the former case the liability is purely a personal liability in the latter case the liability is inseparably connected with the estate passing on death: the estate is received coupled with an obligation to pay estate duty or in other words to quote the Tribunal payment of estate duty is virtually an outlay or expenditure wholly and exclusively incurred for the purpose of making or earning the very assets i. e. the source of income. But this argument is unsustainable and cannot be accepted. The liability of an accountable person for payment of estate duty is as pointed out above a personal liability and is no different in quality or character from that of an assessee liable to pay income-tax. In the one case the estate passes to an accountable person on the death of the deceased and the accountable person therefore becomes liable to pay estate duty in respect of the estate so passing while in the other income accrues to an assessee and the assessee therefore becomes liable to pay income-tax. The incidence of the liability arises in the same manner in both cases: in the former case because the the estate passes to the accountable person and in the latter because the income accrues to the assessee. Just as it is not correct to say that income-tax is paid by the assessee for the purpose of making or earning the income so also it is not correct to say that estate duty is paid for the purpose of making or earning the assets. The distinction sought to be drawn by the assessee is therefore unwarranted and unjustified. ( 12 ) RELIANCE was then placed on behalf of the assessee on the position obtaining under the Income Tax Law in Australia. The distinction sought to be drawn by the assessee is therefore unwarranted and unjustified. ( 12 ) RELIANCE was then placed on behalf of the assessee on the position obtaining under the Income Tax Law in Australia. It was pointed out that in Australia too as in India interest paid on moneys borrowed for discharge of income-tax liability was not a permissible deduction but a distinction was made by the Australian cases in regard to interest paid on moneys borrowed for paying succession and estate duties and such interest was always held to be an admissible deduction and the same distinction it was pleaded should also be recognised by us. In support of this contention the assessee leaned heavily on the following observations in Mr. Gunns Commonwealth Income Tax Law and Practice (Seventh Edition) page 684 para 1741:-1741 Interest on money borrowed to pay death duties-In Begg v. D. C. of T. (1937) 1 A. I. T. R. 78 it was held that interest paid on moneys borrowed to pay succession and estate duties legacies and other outgoings was deductible. In Public Trustee v. C. of T. (N. Z) (1938) N. Z. L. R. 436 it was held that interest payable upon money borrowed for the purpose of paying death duties charged upon the estate of the testator is deductible in computing the assessable income of the estate but apportionment of the interest is required where both assessable and non-assessable income is derived. See extract from the judgment of Myers C. J. in (1402 ). It follows from these decisions that interest Paid direct to the Crown on unpaid death duties is deductible (1742 ). Now it is undoubtely true that the Australian decisions have made a distinction between interest paid on moneys borrowed for payment of income-tax liability and interest paid on moneys borrowed for payment of estate duty and held the former inadmissible while the latter admissible but for reasons already stated we do not think there is any valid basis for this distinction. As a matter of fact even in Australia this distinction has been criticized as illogical by commentators like Mr. Gunn. Mr. Gunn says at page 684 of his above-quoted book in paragraph 1743:it is considered that on the authority of Begg v. D. C. of T. (1937) 1 A. 1. As a matter of fact even in Australia this distinction has been criticized as illogical by commentators like Mr. Gunn. Mr. Gunn says at page 684 of his above-quoted book in paragraph 1743:it is considered that on the authority of Begg v. D. C. of T. (1937) 1 A. 1. T. R. 78 and Public Trustee v. C. of T. (N. Z) (1938) N. Z. L. R. 436 (1741) the whole of the interest paid on moneys borrowed to pay common wealth and state income-taxes is deductible. Applying the dicta of Myers C. J. in Public Trustee v. C. of T. (1402) the money borrowed enabled the taxes to be paid and left the money so borrowed or its equivalent in the estate to be employed in the production of assessable income-In this view the deduction in 2 C. T. B. R. (N. S.) Case 13 was claimed and the case was decided on a wrong footing. The reasoning of Myers C. J. in Public Trustee v. C. of T. (N. Z.) in support of the view that interest paid on moneys borrowed for payment of estate duty was a permissible deduction was to quote the words of the learned Chief Justice himself:the true inference I think in the present case is that the money borrowed enabled the trustee to pay out of the estate the amount of the death duties and left the money so borrowed or its equivalent in capital assets in the estate to be employed in the production of income. Now if this reasoning were valid it should as pointed out by Mr. Gunn equally apply where interest is paid on moneys borrowed for payment of income-tax and such interest must be held to be admissible expenditure. But as already stated the position so far as we are concerned is wellsettled that interest paid on moneys borrowed for income-tax is not allowable expenditure and this reasoning cannot therefore avail and the assessee cannot draw any support from the Australian decisions. Moreover it must be noted that this reasoning though presumably justified by the terms of sec. 51 of the Australian Income Tax Act-a matter with which we are not concerned-has no validity in the determination of a claim for deduction under sec. 57 (iii) of our Act. We have already discussed this aspect of the matter sufficiently and nothing more need be said about it. 51 of the Australian Income Tax Act-a matter with which we are not concerned-has no validity in the determination of a claim for deduction under sec. 57 (iii) of our Act. We have already discussed this aspect of the matter sufficiently and nothing more need be said about it. ( 13 ) WE must therefore reach the conclusion that if moneys were borrowed by the assessee for the purpose of discharging what was purely a personal liability as an accountable person to pay estate duty interest paid on the borrowed moneys would not be an allowable expenditure under sec. 57 (iii ). The question then arise: does it make any difference if there was a charge on the shares for payment of estate duty and moneys were borrowed by the assessee for the purpose of clearing the charge We cannot assent to the broad proposition canvassed on behalf of the assessee that whenever liability is charged on a property and moneys are borrowed for clearing the charge interest paid on the borrowed moneys would necessarily be an allowable expenditure in computing the assessable income from the property. Whether it constitutes an allowable expenditure or not would depend on the facts of each case. But one thing is clear that if property is received by an assessee subject to a charge for payment of a liability and moneys are borrowed for clearing the charge by discharging the liability interest paid on the borrowed moneys would be an allowable expenditure. The purpose of the borrow ing would be to save the property by freeing it from the encumbrance and thus to facilitate the earning of the income and there would accordingly be the requisite connection or nexus between the borrowing of the moneys and the earning of the income. To illustrate the point take a case where property is received by an assessee subject to a charge for payment of money with growing interest. Would the interest paid by the assessee to the charge-holder not be an allowable expenditure in computing the assessable income from the property ? It would be an outgoing in respect of the property just like a municipal tax or cess and would be expenditure incurred for the purpose of making or earning the income from the property within the meaning of se. 57 (iii ). It would be an outgoing in respect of the property just like a municipal tax or cess and would be expenditure incurred for the purpose of making or earning the income from the property within the meaning of se. 57 (iii ). But if this be so what difference should it make on principle if instead moneys are borrowed by the assessee for discharging the liability to the charge-holder and clearing the charge on the property and interest is paid on the borrowed moneys ? If therefore at the date when the estate duty was paid by the assessee the shares were charged with payment of liability for estate duty we must hold that interest paid on the borrowed moneys would be an admissible expenditure under sec. 57 (iii ). ( 14 ) NOW it appears that the matter has not been approached from this point of view and the Tribunal has therefore not investigated whether at the date when the assessee paid the estate duty on behalf of herself and her minor son with moneys borrowed from the Banks she occupied the character of a legal representative of her deceased husband. It is therefore not possible to give a categorical answer to the question referred to us one way or the other We will have to leave it to the Tribunal to apply the law stated by us to the facts of the case and decide whether the interest paid by the assessee on moneys borrowed for payment of estate duty is an allowable expenditure or not. ( 15 ) BEFORE we close we must refer to two small points raised on behalf of the Revenue. Both the points have no merit and must straight way be rejected. One point was that since a part of the moneys borrowed from the Banks in the overdraft accounts namely the sum of Rs. 60 889 was utilised for the construction of an immovable property interest paid to the Banks in the overdraft accounts could not be said to be expenditure incurred solely for the purpose of making or earning dividends on the shares and was therefore not a permissible deduction. But this point overlooks the fact that though undoubtedly the sum of Rs. 60 889 was utilised for the construction of an immovable property interest paid to the Banks in the overdraft accounts could not be said to be expenditure incurred solely for the purpose of making or earning dividends on the shares and was therefore not a permissible deduction. But this point overlooks the fact that though undoubtedly the sum of Rs. 60 889 was utilized for the construction of an immovable property the rest of the moneys borrowed from the Banks in the overdraft accounts were admittedly utilized exclusively for payment of estate duty and there was no indiscriminate utilisation of the borrowed moneys for different purposes as was the case in Commissioner of Income-tax v. Jagmohandas (1966) 61 I. T. R. 663. The position was as if there were two borrowings from the same lenders one borrowing being for the purpose of construction of an immovable property and the other borrowing being for the purpose of payment of estate duty and it is in reference to the latter borrowing that we have to see whether there was any connection between the borrowing and the earning of the dividends on the shares. The second point raised on behalf of the Revenue sought to make a distinction between income and source of income and the argument was that what sec. 57 (iii) contemplates is expenditure incurred for the purpose of making or earning the income sought to be assessed and it is not enough if the expenditure is incurred merely for the purpose of maintaining the source of income. This point is also without substance for it is now well-settled by several decisions of the Bombay High Court of which we may mention only two namely Commissioner of Income-tax v. Purshottamdas (1946) 14 I. T. R. 305 and Ormerods (India) Private Ltd. v. Commissioner of Income-tax (1959) 36 I. T. R. 329 that expenditure incurred for the purpose of maintaining or preserving the source of income is expenditure incurred for the purpose of making or earning the income arising from that source and is an allowable deduction in computing the income from that source. ( 16 ) WE therefore answer the question referred to us as follows; If the assessee was a legal representative of her deceased husband at the date when she paid the estate duty on behalf of herself and her minor son with moneys borrowed from the Banks she would not be entitled to a deduction of her 1/2 share of the interest paid on the amount borrowed relatable to the payment of estate duty but if on the other hand she did not at that date occupy the character of a legal representative of her deceased husband she would be entitled to a deduction of her 1/2 share of the Interest paid on the amount borrowed to the extent to which it was utilized in payment of the estate duty. ( 17 ) THERE will be no order as to costs of the reference. Reference rejected .