# BOMBAY STEAM NAVIGATION CO. (1953) PRIVATE LID. A v. COMMISSIONER OF INCOME-TAX, BOMBAY

- **Citation:** [1965] 1 S.C.R. 770
- **Court:** Supreme Court of India
- **Decided:** 1964-10-21
- **Case number:** Civil Appeals Nos. 10231024 of 1963
- **Bench:** K. Subba Rao, _ J. c. SHAH ANDS. M. SlKRI
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/bombay-steam-navigation-co-1953-private-lid-a-v-commissioner-of-income-tax-3250
- **Pages:** 10

## Headnote

Income Tax Act, 1922 (11 of 1922), s. 10(2) (iii)-lntemt paid on
unpaid balance of purchase price of assets acquired for a business-Whether
such unpaid balance amounts to a loan-There/we whether interest allowable as a deduc1ion on borrowed capi1a/--Or whether allowable as a deduction under s. 10(2) (xv).
·
The assessec company was incorporaled with the object of taking over
certain passenger and ferry services on lhe Konkan Coast. The assessee
company purchased the assets required for its business fl'om the Scindia
Steam Navigation Company and paid part of the consideration by allotting
its own fully paid shares, leaving the balance unpaid.
It was provided in
the contract of purchase that interest at 6 per cent per annum would be
paid to the Scindia Company on any unpaid balance until the whole of ii
was fully paid.
The Income Tax authorities disallowed the claim of the assessee company in the computation of its profits and gains for deduclion of such
inleresl paid to the Scindia Steam Navigation Company, and the Hiih
Court affirmed that \iew.
HELD : lnlerest paid by the assessee company was a permissible deduction under s. 10(2) (xv). [779 F-0)
B
c
D
Per Shah and Sikri JJ.-By s. 10(2)(iii) only interest paid in respect of
capital actually borrowed for the purpose of the business, profession or
vocation, is a permissible allowance. An agreemeo[ to pay the balance of
E
consideration due by the purchaser does not give rise to a loan. Although
a Joan of money undoubtedly results in a debt, every debt docs not involve
a loan.
Io this case the unpaid balance did not amount to capital borrowed and the interest paid thereon could not lherefore be allowed as a deduction under s. 10(2)(iii). [774 H; 775 B-C; 776 C-DJ
Metro Theatre Bombay Ltd. v. C./.T., (1946) 14 I.T.R. 638 and
V. Ramaswami Ayyangar and another v. C.l.T., Madras, (1950) 18 l.T.R.
F
150, referred to and approved.
C.l.T., Madras v. S. Ramsay Ungar, (1947) 15 l.T.R. 87, distinguished.
Subba Rao J. reserved his opinion on the application of cl. (iii) of
sub-5. (2) of s. 10 of the Indian Income·lax Act, 1922 to the claim for
deduction of the interest paid. [771 BJ

## Text

770
BOMBAY STEAM NAVIGATION CO. (1953) PRIVATE LID. A
v.
COMMISSIONER OF INCOME-TAX, BOMBAY
October 21, 1964
(K. SUBBA RAO,_ J. c. SHAH ANDS. M. SlKRI JJ.)
Income Tax Act, 1922 (11 of 1922), s. 10(2) (iii)-lntemt paid on
unpaid balance of purchase price of assets acquired for a business-Whether
such unpaid balance amounts to a loan-There/we whether interest allowable as a deduc1ion on borrowed capi1a/--Or whether allowable as a deduction under s. 10(2) (xv).
·
The assessec company was incorporaled with the object of taking over
certain passenger and ferry services on lhe Konkan Coast. The assessee
company purchased the assets required for its business fl'om the Scindia
Steam Navigation Company and paid part of the consideration by allotting
its own fully paid shares, leaving the balance unpaid.
It was provided in
the contract of purchase that interest at 6 per cent per annum would be
paid to the Scindia Company on any unpaid balance until the whole of ii
was fully paid.
The Income Tax authorities disallowed the claim of the assessee company in the computation of its profits and gains for deduclion of such
inleresl paid to the Scindia Steam Navigation Company, and the Hiih
Court affirmed that \iew.
HELD : lnlerest paid by the assessee company was a permissible deduction under s. 10(2) (xv). [779 F-0)
B
c
D
Per Shah and Sikri JJ.-By s. 10(2)(iii) only interest paid in respect of
capital actually borrowed for the purpose of the business, profession or
vocation, is a permissible allowance. An agreemeo[ to pay the balance of
E
consideration due by the purchaser does not give rise to a loan. Although
a Joan of money undoubtedly results in a debt, every debt docs not involve
a loan.
Io this case the unpaid balance did not amount to capital borrowed and the interest paid thereon could not lherefore be allowed as a deduction under s. 10(2)(iii). [774 H; 775 B-C; 776 C-DJ
Metro Theatre Bombay Ltd. v. C./.T., (1946) 14 I.T.R. 638 and
V. Ramaswami Ayyangar and another v. C.l.T., Madras, (1950) 18 l.T.R.
F
150, referred to and approved.
C.l.T., Madras v. S. Ramsay Ungar, (1947) 15 l.T.R. 87, distinguished.
Subba Rao J. reserved his opinion on the application of cl. (iii) of
sub-5. (2) of s. 10 of the Indian Income·lax Act, 1922 to the claim for
deduction of the interest paid. [771 BJ
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 10231024 of 1963.
Appeals from the judgment and order dated August 9, 1962,
of the Bombay High Court in Income-tax Reference No. 3 of
1961.
A. V. Viswanatha Sastri, T. A. Ramachandran, J. B. Dadachanji, 0. C. Mathur and Ravinder Narain, for the Appellant (in
both the appeals).
G
H
BOMBAY STEAM NAVIGATION CO; \I, C.I.T. (Shah J.)
771
A
C. K. Daphtary, A1torney·General, K. N: Rajagopala Sastri,
R; H. Dehbar and R. N. Sachthey, for the respondent (in bo!h
the appeals)·.
B
The Judgment of J. C. Shah and S, M: Sikri· JJ1 was· delivered
by Shah J.
Suhba Rao J.
I agree with the conclusion, but I would
prefer not to express my view on the construction. of cl. (iii) of
suh-s. (2) of s. 10 of the Indian Income-tu. Act, 1922 .
. Shah J. The Bombay Steam Navigation Company Ltd.
c whicli plied its passenger and ferry services on the Konkan coast
and in the Bombay harbour was amalgamated with effect from
June 30, 1952 with ·the Scindia Steam Navigation Company
Ltd.-hereinafter called "the Scindias". The scheme of amalgamation was sanctioned by the High Court of Bombay and the
Scindias were authorised by the scheme· to float· and· establish a
D
joint stock company with the object of taking over the services
on the Konkan coast and· in the Bombay haibour which were
originally plied by the Bombay Steam Navigation Co; Ltd. Pursuant to this authority the Bombay Steam Navigation· Co: ( 1953)
Private Ltd.-hereinafter called· "the assessee Company" was incorporated on August 10, 1953; The assessee Company conE
tracted wi~h the Scindias on August 12, 1953 to purchase·certain
steamers, launches, boats, barges, buildings, flirniture, fiXtures ·
and've)iicles for a consideration provisionally estimated' at- Rs. 80
lakbs.
It was provided by the agreement that the price of. the
assets rold will b6 satisfied by allotmentto the Scindias of 29,900
F . shares credited as fully. paid-up of. the face value of Rs. U>tl each
in the share capital. of the assessee Company; and'. the· balance
will be treated by the· asscssee Company as. a Joan. granted: by the
Scindias.
The agreement by ct 3 (b) provided for payment of
interest·at 6% on the unpaid: balance of the purchase price; The
clause stood as followst
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'The balance shall be treated by the Transferee Company as a loan granted by the·Transferor Company
secured by a Promissory Note duly executed by th'C
Transferee Company in favour of the Transferor Company and until it is repaid in full it shall carry interest
of 6% per annum
(simple)
and shall be
'further
!ecured by hypothecation of all movable properties of·
the Transferee Company in favour of the Transferor
Company,"
L2Sup./65-6
772
SUPREME COURT REPORTS
[1965] l S.C.R.
On final valuation of the assets transferred it was found that the
A
ai;sesscc Company was liable to pay Rs. 81,55,000
to
the
Scindias.
By a supplemental agreement dated September 16,
1953, the agreement wa~ rectified and the original cl. 3 (b) was
substituted with retrospective effect from August 12, 1953 by the
following clause:
B
'The balance shall be paid by the Transferee Company to the Transferor Company on completion of the
transfer referred to in Clause 2 abo•e and until it is
repaid in full the said balance or so much thereof a~
for the time being remains unpaid shall carry interest
of 6% per annum (simple) and shall further be secured
by hypothecation of all movable properties of the
Transferee Company in favour of the Transferor Company."
In proceedings for assessment of tax for the assessment years
I 955-56 and 1956-57 the Income-tax Officer, Companies Circle
c
II (I), Bombay, disallowed the claim of the assessee Company
D
in the computation of its profits and gains, for allowance of
Rs. 2,74,610 paid by it to the Scindias in the account year
ending June 30, 1954, as interest on the outstanding balance of
purchase price due by it and for allowance of Rs. 2,86,823 paid
as interest in the year ending June 30, 1955.
The order of the
Income-tax Officer was confirmed by the Appellate Assistant
E
Commissioner and by the Appellate Tribunal.
The High Court
of Bombay answered the following question submitted by the
Income-tax Appellate Tribunal in the negative:
"Whether on the facts and in the circumstances of
the case the said sum of Rs. 2,74,610 and Rs. 2,86,823
being the interest paid by the assessee is allowable as a
deduction under the Income-tax Act under any of the
sections 10(2)(iii), 10(2)(xv) or IO(!) ?"
With certificate of fitness under s. 66A(2) of the Income-tax
Act, the assessee Company has appealed to this Court.
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In the computation of profits and gains of the business carried
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on by it the assessee Company claimed the two amounts paid as
permissible allowances under s. 10(2)(iii) or under s. 10(2)
(xv).
Alternatively, the assessee Company claimed that in the
computation of the true profits of the business under s. 10(1)
the amounts paid as interest are necessarily allowable.
Section
10, by the first clause, provides :
H
"The tax shall be payable by an assesscc under the
head 'Profits and gains of business, profession or vocation'
BOMBAY stEAM NAVIGATION co. v. C.l.T. (Shah J.)
773
A
in respect of the profit or gain& cif . a,ny business, professiop or vocation carried on by hiin;"
Tax is payable under s. lOH)-by-an assessee on .its profits or
gains earned in the ·business, profession or vocation carried on
by him in the yc;ar of account. , If no business at all is carried on
13
in that year; liability to ~ax does nor aijse under s. 10(1).
Clause (iii) of sub-s. (2) of s. 10 provides :
"Such profits or gains shall be computed after making
the following allowances, namely :-
'
(iii) in respect of capital borrowed for the purposes
C
of the business, profession or vocation, the amount of
interest paid."
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The proviso an,d the Explanation with which. we are not
concerned in these appeals need not be set out.
The expression "such profits or gains" in sub-s. (2) on the plain
language used by the Legislature means profits or gains of a
business carried. on in the year of account. . In the computation
of profi,ts and gains of a business . carried on in the year of
account, allowances set out in els. (i) to (xv) are permissible:
some of these permi~sible allowances are of the nature of revenue
outgoings, and others are of" the nature of capital outgoings.
Gross profits or gains must ~ndoubterlly be of the nature of
revenue receipts.
But in the coruput~tion of taxable.profits from
the receipts of the business, not o:ily revenue deductions but certain capital deductions are penn1acd to be made, e.g. depreciation, sums paid to scientific research associations, expenditure of
a capital nature on scfomHic :c>carch and other expenditure of
a capital nature.
By cl. (iii) of sub-s. (2), interest paid in respeet of capital borrowed for the purpose of the business, profession
or vocation is a permissible allowance in the computation of the
profits or gains.
The expression "capital" used in cl. (iii) in
the context in which it occurs means money and not any other
asset, for uiterest is payable on capital borrowed and interest
becomes payable on a. !Oan of money and not on any other asset
acquired under a contract. Interest paid need not however bear
!Pe character of a revenue outgoing. To be .admissible as an
ailowance tin,der cl. (iii), interest must be paid in respect of capital borrowed ~ interest paid, but not in respect of capital borrowed
cannot be· allow~d.
There was in the present case, in truth no capital borrowed
.by the assessee Company. To recapitulate the facts : the
774
SUPREME COURT REPORTS.
[1965] l s.c.R.
assessee Company purchased the assets required for its business
from the Scindias and paid part of the consideration by allotting
shares of the value of Rs. 29,99,000 leaving the balance of
Rs. 51,56,000 unpaid. In cl. 3 (b) of the contract as originally executed it was recited that this amount was to be treated
as a loan by the Scindias to the assessee Company, but with retrospective operation the covenant was modified, and the amount
due was to be treated as balance of purchase money remaining
unpaid.
Mr. Viswanatha Sastri argued that the asscssee Company owed
a debt of Rs. 51,56,000 to the Scindias, payment of which was
secured by the execution of a promissory note and a charge on
the as!.ets of the assessee Company.
The substance of the transaction, according to Counsel, was a Joan given by the Scindias to
its sub.<idiary-the assessce Company-for procuring the assets
required for carrying on the business, even though the formal
transaction did not record it as a loan, and as a contractual liability to pay a debt was incurred, the Court would be justified in regarding :he transaction a* one involving borrowing of the amount
agreed to be paid by the assessee Company.
It was said that if
the asscs!~ee Company had borrowed the amount of Rs. 51,56,poo
from a stranger and had paid the entire consideration to 'the
Scindit1s. interest paid to the stranger would indisputably be an
allowanc~ admissible in the computation of taxable profits of
the assessee Company, and there was no reason why a different
principle should be applied when the Scindias in substance had
made the requisite funds available to enable the assesscc Company to purchase the assets.
The transaction with the vendor
could be regarded, it was also urged. as a composite transaction
(i) a transaction of borrowing Rs. 51,56,000 from the Scindias
and ·(ii) a transaction for payment of the entire consideration
due for purchasing the assets from the Scindias.
In our judgment this is not a permissible approach in ascertaining the true nature of the transaction.
The parties had agreed
that assets of the value of Rs. 31,55 ,000 be taken over by the
assessee Company from the Scindias.
Out of that consideration
Rs. 29,99,000 were paid by the assessee Company and the
balance remained unpaid.
For agreeing to deferred payment of
a part of the consideration, the Scindias were to be· paid interest.
An ~greement to pay the balance of consideration due by the
purchaser docs not iJ, truth give rise to a loan.
A Joan of money
undoubtedly results in a debt, but every debt does not involve a
Joan.
Liability to pay a debt may arise from diverse sources,
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BOMBAY STEAM NAVIGATION CO. v. C.l.T, (Shah J.)
775
and a loan is only one of such sources.
Every creditor who is
entitled to receive a debt cannot be regarded as a lender. If the
requisite amount of consideration had been borrowed from a
stranger interest paid thereon for the purpose of carrying on the
business would have been regarded as a permissible allowance;
but that is wholly irrelevant in considering the applicability
of cl. (iii) of sub-s. (2) to the problem arising in this case.
The
Legislature has under cl. (iii) permitted as an allowance interest
paid on capital borrowed for the purposes of the business; if
interest be paid, but not on capital borrowed, cl. (iii) will have
no application.
In Metro Theatre Bombay Ltd. v. Commissioner of lncometax (1) the Bombay High Court held that a mere purchase of a
capital asset on a long-term credit with a stipulation for payment
of interest on the reduced balance did not amount to borrowing
capital within the meaning of s. 10(2) (iii). Under an arrangement to receive a long-term lease of property the assessee in that
case agreed to pay the consideration stipulated in half-yearly
instalments spread over a number of years with int€rest at five
per cent on the balance outstanding.
Interest paid on the balance
was disallowed as a permissible deduction in computing the total
assessable income. In Metro Theatre's case(') liability to
P"Y
interest arose under an agreement to receive a lease in future,
whereas liability in the present case arises under an agreement to
pay under a completed sale transaction the balance of consideration unpaid.
But that is not a real ground of distinction.
The
amounts in both the cases were. paid as interest, but in neither
cafo was interest paid in respect of capital borrowed.
In V. Ramaswami Ayyangar and Anr v. Commissioner of
Income-tax, Madras(') the assessee who was carrying on a
money-lending busi11fss claimed that in computing his business
income he was entitled under s. 10 ( 2) (iii) to deduct interest paid
on death duty to the Government of Ceylon on properties left by
a deceased person.
The Court negatived the claim for such
G deduction.
The amount which was not paid as death duty was
used. for the purposes of the business, but it could in no sense be
regarded as a borrowing from the Government of Ceylon. The
Court held thats. 10(2) (iii) contemplates lending of money and
borrowing of the lender's money by the borrower with a contracH
tual stipulation for repayment with interest on the loan : if a loan
so borrowed is employed in or for the purpose of the business of
the assessee interest paid on such loan is a permissible deduction.
--·-----------·-··
(!) (1946) 14 l.T.R. 638.
(2) (1950) 18 l.T.R. ISO.
776
SUPREME COURT REPORTS
[1965] l S.C.R.
But an amount due under a statute cannot be regarded as borrowA
cd capital, for the expression "capital borrowed" predicates the
relation of a borrower and a lender, which relationship did not
exist in that case.
The principle of Conzmissibner of Income-tax, Madras v.
S. Ramsay Unger(') on which strong reliance was placed by
B
Mr. Viswanatha Sastri docs not come to his aid, for in that case
the Court held on the facts and circumstances that in substance
the transaction which gave rise to the liability to pay interest was
one of borrowing capital and therefore the whole of interest debited in the books of the assessee must he allowed as interest paid on
such capital.
C
We therefore agree with the High Court that the claim for
deduction of the amount of interest under s. 10(2) (Iii) is not
admissible.
But in our judgmeni interest paid by the assessce Company
is a permissible deduction under s. J0(2)(xv) which pennits "any
expenditure not being an allowance of the nature described in
any of the clauses (i) to (xiv) inclusive and not being in the
nature of capital expenditure or personal expenses of the assesscc
laid out or expended wholly and· exclusively for the purpose of
such business, profession or vocation" as a permissible allowance
in the computation of profits or gains of the business carried on
in the year of account.
Payment of interest is expenditure; but
it is not an allowance of the nature described in cl. (iii) and there
is no other clause in els. ( i) to (xiv) to which the payment of
interest on unpaid balance of consideration for sale of assets may
be attracted.
The expenditure was incurred .after the commencement of the business.
The expenditure is not for any private or
domestic purposes of the assesscc Company.
It is in the capacity
of a person carrying on business that this interest is pai~.
The question then is whether the expenditure is of a capital
nature.
It is not easy ordinarily to evolve a test for ascertaining
whether in a given case expenditure is capital or revenue. for
the determination of the question must depend upon the facts and
circumstances of each case.
The Court has to consider the nature
and ordinary course of business and the objects for which the
expenditure is incurred.
The assessee Company urged that the
payment of interest was revenue expenditure for the purposes of
the business of the assessee Company, because in the event of
(I} (1947) t' J.T.R. 87.
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BOMBAY STEAM NAVIGATION CO. V. C.I.T. (Shah /,)
777
A failure to pay interest accruing due the Scindias would enforce
·the lien, and the business of the asses see Company would come to
an end and that in any event the expenditure was ·necessary on
grounds of business expediency and incurred in order directly or
indirectly to facilitate the carrying on of business. If the principal or the interest accruing due was not paid the Scindias had
B undoubtedly a· right to enforce their lien against the assets of the
assessee Company's business, but- that cannot. be regarded as a
ground for holding that the expenditure fell within s. 10(2) (xv).
Even in respect of a liability wholly unrelatea to the business, it
would be open to a creditor to sequester the assets of the assessee's
business and ·such sequestration may result in stoppage of . the
C operations of the business.
Expenditure for satisfying liability
unrelated to the business even if. incurred for avoiding danger
apprehended or real to the conduct of the business cannot be said
to be revenue expenditure: ·Nor can it be said that because a
liability has some relation to the business which is carried on,
D expenditure incurred for satisfaction of such liability is always
to be regarded a_s falling withins. 10(2) (xv).
Whether a particular expenditure is revenue expenditure incurred for the purpose ·of business must be determined on a conside_ration of all the facts and circumstances, and by the application
E of principles of commercial trading.
The question must be viewed in the larger context of business necessity or expediency.
If the outgoing or expenditure is so related to the carrying on OT
conduct of the business, that it may be regarded as an integral
part of the profit-earning process and not for acquisition of an
asset or a right of a permanent character, the possession of which
F is a condition of the carrying on of the business, the. expenditure
may be. regarded as revenue expenditure.
In a recent case Stall!
of Madras v. G. J. Coelho(') this Court had to consider the
permissibility of a deduction under s. 5 ( e) of the Madras Plantations Agricultural Income-tax Act, 1955.
Section 5(e), it may
be observed, is in terms similar to s. 10(2) (xv) of the IncomeG tax Act.
Section 5 permits deductions of various item~ of expenditure in the computation of agricultural income.
Clause ( e)
provides for the deduction of any expenditure incurred in the
previous year (not being in the nature of capital expenditure or
personal expenses of the a:ssessee) laid out or exoended wholly
and exclusively for the purpose of. plantation.
The assessee in
H that case had purchased an estate consisting of tea, coffee and
rubber plantations in the Nilgiris mountains for · Rs. 3, 10,000.
(I) (1964) S3 l.T.R. 186.
778
SUPREME COURT RBPORTS
[1965] L S.C.R.
He borrowed Rs. 2,90,000 on interest and claimed
to
deduct
the interest paid out of the income of the plantations in the asseS&-
ment year 1955-56.
The claim was made under els. (e) and (k)
ol. Ii. 5.
The claim under cl. (k) was not admissible b.:causc
interest was not payable on the amounts borrowed and actually
spent on the plantations in the previous year, and the sole question
which fr!l to be determined was whether it was a permissible
allowance under s. 5 ( e).
It was held that the payment of interest
v.•as not in the nature of capital expenditure in the year of account.
The Court held that payment of interest even in respect of capital
borrowed for acquiring assets to carry on busines.- must be regarded as revenue expenditure in commercial practice and should not
be termed as capital expenditure.
Dealing with the appHcation
of'· S(c) it was observed:
"The assessec had bought the plantation for working
it as a plantation, i.e. for growing tea, coffee and rubber.
The payment of interest on the amount borrowed for
the purchase of the plantation when the whole transaction of pu!chasc and the working of the plantation is
viewed ·as an integrated whole, is so closely related to
the plantation that the expenditure can be said to be
laid out or expended wholly aod exclusively for the purpose of ,the plantation.
In this connection, it is
pertinent to note that what the Act purports to tax is
agricultural income and not agricultural receipts. From
the agricultural re~eipts must be deducted all expenses
which in ordinary comme,cial accounting must be
dobited against the receipts.
. . . . In ?Jrinciple, we
do not see any distinction between interest paid on capital borrowed for the acquisition of a plantation and
interest paid on capital borrowed for the purpose of
existing plantations : both are for the purpo5CS of the
plantation."
The test laid down by this Court therefore was that expenditure
made under a transaction which is so closely related to the business that it could be viewed as an integral part of the conduct
of the business, may be regarded as revenue expenditure laid out
wholly and exclusively for the purposes of the business.
The asscssee Company had undoubtedly acquired the assets
by pledging its credit.
The asscssee Company was formed for
the ·purpcse of taking over the businC6S which the Scindias had
acquired and for carrying on that business the assets with which
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BOMBAY STEAM NAVIGATION CO. v. C.!.T. (Shah!.)
779
the business was ·to be carried on were required.
For obtaining
those assets the assessee Company rendered itself liable for a
sum of Rs. 51,56,000 and agreed to pay that sum with intereiot
at the rate stipulated. The transaction of acquisition of the
assets was closely related to the commencement and carrying on
of the business.
Interest paid on the amount remaining due
must in the normal course be regarded as expended for the purpose of the business, which was carried on in the year of account.
There is no dispute that if interest was paid for· the purpose of
the business, it was laid out or expended wholly and exclusively
for that purpose.
Mr. Rajagopala Sastri on behalf of the Revenue contended
that as profits which arise after the business is closed are not taxable under s. 10 (1), expenditure the source of which is a liability
incurred before the actual commencement of business cannot also
be ·regarded as a permissibte outgoing under s. 10(2)('xv). It
is unnecessary to examine the correctness of this argument, for it
has no basis in fact.
The assessce Company was formed on
August 10, 1953, it had entered into an agreement on August 12,
1953, and interest was paid in the years of account ending June
30, 1954 and June 30, 1955.
The source of liability cannot
be said to have arisen prior to the date on which the business of
the assessee Company was commenced. Section 10(2) requires
E that in computing the taxable profits or gains of a business which is
carried on in the year of account allowances of the nature described in els. (i) to (xv) should be made.
If no business was carried
on in that year, the allowances are not permissible.
But interest
in respect of which allowance is claimed was paid at a time when
F
the business was carried on, and the source of liability to nay
interest was also incurred within the period in which the business
was carried on.
We are, therefore, of the view that the allowance claimed is a
permissible deduction under s. I 0 ( 2 )(xv).
G
We do not, in the circumstances, feel called upon to consider
whether in computing the income of the assessee under s. 10 (I)
interest paid may be regarded as a necessary outgoing for the purpose of the business of the assessee Company.
The appeals are therefore allowed with costs in this Court.
One hearing fee.
,ff
Appeals 11llowed.