Law: Income Tax Act, 1922

Section: 9(1)(iv)

Income tax Act (XI of 1922)-----S. 9 (1) (iv) Assessee company deposited with Bank certain of its bearer debentures as security for moneys owing by company to Bank on overdraft Interest on debentures not deductible as interest on mortgage. In re : Regents Canal Iron Works Co. (1876) Ch. D 43 rel. In the matter of Behari Lal Mullick (27) 54 Cal 630 ref. JUDGMENT LORD UTHWATT. This is an appeal by the Commissioner of Income tax, Bengal, from a judgment and decree of the High Court of Judicature at Bengal, the matter coming before the High Court on reference under section 66 (1) of the Income tax Act, 1922 (as amended), made by the Income tax Appellate Tribunal, Calcutta Bench. The question at issue is whether it was rightly decided by the High Court that the respondent Company on an assessment under that Act to tax on its income from buildings was entitled to an allowance in respect of interest payable under certain debentures issued by it to the Allahabad Bank. The facts are simple, the relevant statutory provision is free from ambiguity, and the point is short. Exceptionally the nut is not scattered on emerging from its shell. Prior to that the tax year 1937/1938 the Company deposited with the Bank certain of its bearer debentures (forming part of a large series) as security for the moneys for the time being owing by it to the Bank on overdraft. The debentures contained the common form of agreement to pay to the bearer the principal and, on stated dates, the interest. The debentures were entitled td the benefit of a Trust Deed under which properties of the Company, including the buildings mentioned, stood as security for the payment of the principal and interest of the debentures. The Income tax Act section 9 (1) provides that tax shall be payable in respect of the annual value of property consisting of buildings subject to certain allowances. The allowance to be considered is contained in head (iv) of section 9 (1) and is as follows: "Where the property is subject to a mortgage or other capital charge, the amount of any interest on such mortgage or charge." In the relevant year 1938 39 the Company, while paying interest on its overdraft paid no interest on the…

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