Eastern Investments Ltd v. Commissioner Of Income-Tax, West Bengal

19SI Kumar Pa1hupatinath Malia and Another v. Deba ProJanna Mukherjee Patanfali Sastri J. SUPREME COURT REPORTS [1951] of the mortgagee must, in that context, be understood with reference to the sufficiency of the right assigned to enable the sub-mortgagee to sue the original mort· gagor in his own right, so a~ to bring the relevant provisions of the Act into play as between them. The reservation made by their Lordships in the case of a sub-mortgage containing only a charge on the original mortgage is signification and supports this view. I do not consider, therefore, that there is any inconsistency between Promode Kumar Roy v. Nikhil Bhusan Mukhopadhya(') and the earlier decisions, and even if there be any such inconsistency it has no relevance to the present case. In the result I agree that the appeal fails and should be dismissed with costs. Appeal dismissed. Agent for the appellants : R. R. Biswas. Agent for the respondent : Sukumar Ghose. EASTERN INVESTMENTS LTD. COMMISSIONER OF INCOME-TAX, WEST BENGAL. [SHRI HARILAL KANIA c. J., PATANJALI SASTRI, S. R. DAs and VIVIAN BosE JJ.] Indian Income-tax Act (XI ·of 1922), s. 12(2)-Business expenditure-Interest on debentures-Reducing capital of company hy taking over shares and giving debentures to shareholder-Income of company reJucd-lnterest on Jebentures,.whether allowable. A private limited company formed for dealing in shares and securities had a share capital of 250 )acs of rupees of which shares of the face value of 50 lacs were held by A and the remaining shares were held by his nominee's. As the company was in need of money it was resolved, with the consent of A, to reduce the share capital by 50 lacs by the· oompany taking over the 50 lacs shares which were held by A and giving to A instead debentures of the face value of Rs. 50 lacs carrying interest at 5 per. cent. per annum. The Income-tax Appellate Tribunal and the High Court held that the interest on the debentures could not be allowed as business expenditure under s. 12(2) of the Income-tax Act, the main grounds on which this conclusion was arrived at. being (i) the pµrpose of the transaction was to effect. the conversion, (ii) the taxable income of the company was reduced, (iii) it was the same person who brought about the transaction, to whom .the share money was paid and who took the debentures, (iv) · the transaction was more in the interest of that person than the company, ( v) the capital of the company could have been reduced in other ways : Held by the Full Court (KANIA C, /. PATANJALI SAsTR1, DAs and BosE, JJ.) that the test for deciding whether the expenditure was allowable under s. 12(2) was whether the transaction was properly entered into as part of the company's ordinary under-takings to facilitate the carrying on of its business for :he purpose of earning income, and in. the absence of fraud the High Court was not justified in . coming to the conclusion that the interest on the debentures was not allowable on the considera-tions mentioned above. On the facts it was clear that the transaction was entered into in order to facilitate the carrying on of the business of the company and that it was made on the ground of commercial expediency. The interest on the debentures was accordingly allowable under s. 12(2). Farmer v. Scottish North American Trust Ltd. [1912) A. C. 118 referred to. CIVIL APPELLATE JuiusI>IcTION. Civil Appeal No. 89 of 1950. Appeal against the . Judgment and Order dated 5th . July, 1949, of the High Court of Judicature at Calcutta (G. N. Das and Mukherjee JJ.) in Ip.come-tax Reference No. 11 of 1948. S. Mitra (S. N. Mukherjee, with him) for the appellant. M. C. Setalvad, Attorney-General for India (S. M. Sikri, with him) for the respondent. 1951. vered by May 4. The Judgment. of the Court was deli- BosE J.-This is an assessee's appeal from a judg- ment of the High Court at Calcutta . delivered on a reference made to it under section 66( 1) of the Income-tax Act. 594 [1951] 595