Subba Rao, J. - (1.) I agree with the conclusion, but I would prefer not to express my view on the construction of cl. (iii) of sub-s. (2) of S. 10 of the Indian Income tax Act, 1922.
(2.) SHAH, J. (For himself and SIKRI, J.):The Bombay Steam Navigation Company Ltd. which plied its passenger and ferry services on the Konkan coast and in the Bombay harbour was amalgamated with effect from June 30, 1952 with the Scindia Steam Navigation Company Ltd.- hereinafter called "the Scindias". The scheme of amalgamation was sanctioned by the High Court of Bombay and the Scindias were authorised by the scheme to float and establish a joint stock company with the object of taking over the services on the Konkan coast and in the Bombay harbour which were originally plied by the Bombay Steam Navigation Co. Ltd. Pursuant to this authority the Bombay Steam Navigation Co. (1953) Private Ltd.-hereinafter called "the assessee Company" was incorporated on August 10, 1953. The assessee Company contracted with the Scindias on August 12, 1953 to purchase certain steamers, launches, boats, barges, buildings, furniture, fixtures and vehicles for consideration provisionally estimated at Rs. 80 lakhs. It was provided by the agreement that the price of the assets sold will be satisfied by allotment to the Scindias of 29,900 shares credited as fully paidup of the face value of Rs.100 each in the share capital of the assessee company, and the balance will be treated by the assessee Company as a loan granted by the Scindias. The agreement by cl. 3(b) provided for payment of interest at 6% on the unpaid balance of the purchase price. The clause stood as follows: "The balance shall be treated by the Transferee Company as a loan granted by the Transferor Company secured by a Promissory Note duly executed by the Transferee Company in favour of the transferor Company and until it is repaid in full it shall carry interest of 6% per annum (simple) and shall be further secured by hypothecation of all movable properties of the Transferee Company in favour of the Transferor Company." On final valuation of the assets transferred it was found that the assessee Company was liable to pay Rs. 81,55,000/- to the Scindias. By a supplemental agreement dated September 16, 1953, the agreement was rectified and the original cl. 3(b) was substituted with retrospective effect from August 12, 1953 by the following clause: "The balance shall be paid by the Transferee Company to the"Transferor Company on completion of the transfer referred to in cl. 2 above and until it is repaid in full the said balance or so much thereof as for the time being remains unpaid shall carry interest of 6% per annum (simple) and shall further be secured by hypothecation of all movable properties of the Transferee Company in favour of the Transferor Company."
(3.) In proceedings for assessment of tax for the assessment years 1955-56 and 1956-57 the Income-tax Officer, Companies Circle II (1), Bombay, disallowed the claim of the assessee Company in the computation of its profits and gains for allowance of Rs. 2,74,610/ - paid by it to the Scindias in the account year ending June 30, 1954, as interest on the outstanding balance of purchase price due by it and for allowance of Rs. 2,86,823 / - paid as interest in the year ending June 30, 1955. The order of the Income-tax Officer was confirmed by the Appellate Assistant Commissioner and by the Appellate Tribunal. The High Court of Bombay answered the following question submitted by the Income-tax Appellate Tribunal in the negative: "Whether on the facts and in the circumstances of the case the said sum of Rs. 2,74,610 and Rs. 2,86,823 being the interest paid by the assessee is allowable as a deduction under the Income tax Act under any of the Ss. 10(2)(iii), 10(2)(xv) or 10(1) - ;