COMMISSIONER OF INCOME TAX Vs. SIR HOMI M MEHTA

JUDGEMENT

(1.) THE Commissioner has raised two questions. THE first one is :-

(2.) IT appears from the case that the Insurance Company in question, which is in fact a Limited Company, though it is not so stated in the question, was promoted by the assessee, and the assessee continues to be a Director and Managing Director of the Company, for which he receives a salary, and he holds 25,000 shares out of a total of a lac of shares. The Company got into financial difficulties owing to a large claim made against it by a foreign Company, and the assessee came to the rescuer of this Company, and during the accounting period made to it a gift of the sum mentioned in the question, and we have to determine whether that sum can be allowed as a deduction. IT is, of course, obvious that primarily the business for the preservation of which the payment was made, was the business of the Company, and not the business of the assessee. But it is said that the payment was made, in part, in order to preserve the fees payable to the assessee as Director and Managing Director and the dividends on his shares in the Company. So far as those items of income are concerned, it seems to me that they clearly would not come within Section 10 of the Act, which deals with deductions allowable from income derived from business, but would have to be brought within the provisions of Section 12, which deals with tax on other sources of income. IT is said, however, that the case may be brought within Section 10, because part of the business of the assessee consists in the promotion and financing of Companies. And that the object of this payment was to preserve such business and the assessees reputation as a businessman, so as to secure income from future promotion of Companies.

(3.) REFERENCE answered accordingly.