Deductibility of interest on unpaid asset price rejected where payment was tied to delayed share allotment, not business expenditure.

A legal question may be entertained in reference if it arises out of the Tribunal's order, even where a specific alternative statutory basis was not separately urged below, provided the principal deduction controversy was before the tax authorities. On the merits, interest paid on the unpaid price of assets, payable until shares were allotted, was held not deductible under section 10(2)(xv) because it was neither interest on borrowed money for business purposes nor an outgoing wholly and exclusively incurred in carrying on the business. The payment was treated as arising from delay in allotment pending statutory sanction, and not as a business expense or part of the profit-making process.

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Issues: (i) Whether the reference could include the alternative claim under section 10(2)(xv) though that precise provision was not relied upon before the Tribunal; (ii) whether interest paid on the unpaid price of assets, payable until shares were allotted, was allowable as a deduction under section 10(2)(xv).

Issue (i): Whether the reference could include the alternative claim under section 10(2)(xv) though that precise provision was not relied upon before the Tribunal.

Analysis: The scope of section 66(1) and section 66(2) extends to a question of law arising out of the Tribunal's order. A question may arise in more than one aspect, and it is not necessary that every legal contention supporting the principal issue should have been separately argued before the Tribunal, so long as the principal controversy itself was before it. The assessee's basic contention before the income-tax authorities was that the amount was an allowable deduction, and the alternative legal basis under section 10(2)(xv) formed part of the same controversy.

Conclusion: The objection was rejected, and the question could be entertained.

Issue (ii): Whether interest paid on the unpaid price of assets, payable until shares were allotted, was allowable as a deduction under section 10(2)(xv).

Analysis: Section 10(2)(xv) permits only expenditure laid out wholly and exclusively for the purposes of the business and not being capital expenditure. On the facts, the payment was not interest on borrowed money for carrying on business, nor interest on an unpaid purchase price in the commercial sense. The agreement itself showed that the amount was to remain a loan only until allotment of shares, and the payment arose because allotment was delayed pending statutory sanction. The business had already commenced, and the payment was not shown to be an outgoing incurred in the course of carrying on the business or as an integral part of the profit-making process. The authorities dealing with interest on borrowed purchase money or integrated business acquisition were distinguishable.

Conclusion: The amount was not deductible under section 10(2)(xv) and the answer was against the assessee.

Final Conclusion: The reference was answered in favour of the Revenue, and the assessee was held not entitled to the claimed deduction.

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