1931 (8) TMI 3

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....rious parts of the world. It appears from the facts found in the case that in June 1926 the Company borrowed a sum of 32 lakhs of Rupees odd, and with that, and some other moneys which formed part of the capital of the company, it purchased large sums of sterling securities, something over 76 1akhs of Rupees. It further appears that about 5 lakhs of Rupees more has been invested in sterling securities out of the interest received on the securities purchased with the capital and borrowed moneys. Now the point which arises for decision is this: The Company say that they are entitled to claim as a deduction from their taxable profits in British India the interest on the 32 lakhs of Rupees which they borrowed notwithstanding the facts that tha....

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.... the capital was used so as to earn income which would attract Indian income-tax is entirely beside the point. But in construing that section one must, as the learned Advocate-General claims, have regard to the context and the other provisions of the Act. Under section 4 the Act applies to income, profits or gains as described in section 6 from whatever sources derived accruing or arising or received in British-India - I only read so much as is material-find then sub-section 2 provides "Profits and gains of a business accruing or arising without British India shall, if they are received in or brought into British India, be deemed to have accrued or arisen in British India and to be profits and gains of the year in which they are so re....

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....e one which earns taxable profits or gains. Then when we come to sub-section (2) (iii), an allowance is to be made in respect of interest on capital borrowed for the purposes of business. Now, I think that again must be for the purposes of the business which earns or is capable of earning taxable profits. Whether in fact taxable profits are earned or not is not necessarily the criterion, because the borrowed money may earn no profit, but I think the "business" referred to in that section is a business which is so carried on that taxable profits may be earned, and unless it is a business of that character a deduction for interest on capital money borrowed for the purposes of that business is not allowable under the Act. That point....

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....ed out, are that this money was borrowed in June 1926, that it was employed in the purchase of securities outside British India, that these securities have been retained outside British India and the income derived from them has been dealt with outside British India ever since 1826, and that being so, it seems to me that as a matter of fact the Company, qua the capital which it is using outside British India and retaining for that length of time outside British India, is not carrying on a business in respect of which profits assessable to Indian income-tax can be earned so that an allowance can be claimed for interest on capital borrowed within the meaning of section 10 (2)(iii). We are told that some amendment of the Act. in respect of th....