Law:

Section:

JUDGMENT Raghavan, J.-The question of law that is referred to us in this reference under section 66(2) of the Indian Income-tax Act is : "Whether, on the facts and circumstances of the case, the Tribunal was correct in holding that the amount of Rs. 4,05,071-8-5 claimed by the assessee company as a deduction was not admissible either under section 10(2)(xi) or 10(2)( xv) ? " 2. The assessee is a public limited company carrying on business as promoters and financiers of companies, as managing agents of companies and estates and as forwarding, clearing and steamer agents. It has a few trading lines also. The directors of the company are A.V. Thomas, S. Sankara Narayana Iyer and J. Thomas. There is another private limited company by name the Southern Agencies, Pondicherry, Ltd., with the three directors A.V. Thomas, S.S. Natarajan and C.S. Ramakrishna Karayalar. This company, hereinafter referred to as "the Agencies," was carrying on business on lines similar to those of the assessee company. A.V. Thomas, as is clear from the above, is a director of both the abovesaid companies and he has controlling powers in both of them. 3. Between September 14, 1948, and December 31, 1948, A.V. Thomas advanced large sums of money amounting to Rs. 6,05,071-8-5 out of the funds of the assessee company to the Agencies and these payments were later approved by the directors on 1st September, 1950. This amount has been shown in the books of the assessee company in the ledger accounts for the year 1948, relating to the Rodier Textile Mills limited as amounts paid towards purchase of shares. It may be mentioned at this stage that the Agencies promoted the above company, the Rodier Textile Mills Limited, and the above amount of Rs. 6,05,071-8-5 was for purchasing shares of the said Rodiers. The Rodiers was not successful and was not put into commission. Hence, on the failure of the issue of the shares of the Rodiers, a sum of Rs. 2,00,000 was repaid by the Agencies to the assessee company on December 7, 1951. The balance of Rs. 4,05,071-8-5 was written off in the accounts of the assessee company on December 31, 1951, and was shown as a deduction from the profits for that year. This…

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