Refund under Section 48 denied where debenture interest credited to trustee was not the trustee's income in substance.

A refund under Section 48 of the Indian Income-tax Act, 1922 was unavailable where the company had used its own funds to buy debentures in the name of a debenture trustee and retained the beneficial ownership subject to security arrangements. The interest credited to the trustee was not, in substance, the trustee's income but a deposit or appropriation of the company's own money for security purposes. As the tax deduction was not made from income properly chargeable in the trustee's hands, the machinery of Section 18(5) and the refund provision in Section 48 did not assist the company. The reference was answered against the assessee.

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Issues: Whether the company, having caused debentures to be purchased in the name of a debenture trustee and retained as security, remained the beneficial owner of the debentures and was entitled to refund of the tax deducted from the interest credited to the trustee under Section 48 of the Indian Income-tax Act, 1922.

Analysis: The funds used to purchase the debentures belonged to the company and the transaction, on the resolution and trust arrangement, left the company as owner of the debentures subject to the charge created for the debenture holders. The payments made to the trustee were not, in substance, the trustee's income but a deposit or appropriation of the company's own funds as security. For that reason, the amounts deducted could not be treated as tax properly deducted from income chargeable in the hands of the trustee, and the machinery of Section 18(5) and the refund provision in Section 48 did not apply in the company's favour.

Conclusion: The company was not entitled to claim refund of the tax deducted from the interest paid to the debenture trustee.

Final Conclusion: The reference was answered against the assessee and in favour of the Revenue, leaving no entitlement to refund under Section 48 on the facts found.

Ratio Decidendi: A refund under Section 48 is available only where tax has been paid or treated as paid on behalf of a person whose income was properly chargeable to tax; a deduction made from a payment that is not the recipient's income does not create a refund right in the payer.

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