BOMBAY STEAM NAVIGATION CO 1953 PRIVATE LIMITED Vs. COMMISSIONER OF INCOME TAX BOMBAY

JUDGEMENT

(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:

(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: