R. DALMIA vs C.I.T., DELHI, NEW DELHI

The Supreme Court held that the interest paid on a loan taken for purchasing shares is a permissible deduction under Section 12(2) of the Income Tax Act, 1922, as there exists a direct nexus between the interest and the earning of dividend income. The Court clarified that even without the transfer of equitable title to the shares, the declared dividends accrue to the purchaser, thus entitling the assessee to deduct the interest paid. The Court allowed the appeal in part, reversing the decisions of the High Court and the Tribunal regarding the disallowance of interest while affirming the exclusion of dividends from total income.