ORMERODS INDIA PVT LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) ON this reference arise a very short question of the construction of the first part of section 12(2) and the case, as aptly observed by the Tribunal, is rather extraordinary. The assessee is a private limited company. Its accounting year ends on 30th November every year. The reference has been brought in respect of n order affecting the assessment of the company of the years 1949 -50 and 1950 -51. It may be pointed out that the order relates to assessment not only of the two years 1949 -50 and 1950 -51 but to five years commencing with the assessment year 1949 -50. In respect of the other there years, the Department has not raised any question for determination by the court. The balance -sheet of the company of the year ending 30th November, 1948, showed that it held total investment in share to the tune of over Rs. 521/4 lakhs. The assessee purchased a block of shares in Gannon Dunkerly and Co. Ltd. for a sum of about Rs. 521/2 lakhs during the accounting year ending with 30th November, 1948. There is no dispute that for the payment of the price of these shares, the assessee borrowed about 36 lakhs from the Empire of India Life Assurance Co. Ltd. and as security pledged these shares of Gannon Dunkerly and Co. Ltd. which it had purchased. In addition to this loan of Rs. 36 lakhs, the assessee also incurred other debts and the unsecured loans amounting to about Rs. 131/2 lakhs. That these moneys taken on loan from the insurance company and other persons were utilised for paying consideration of the shares shares is not in dispute. The paid up capital of the company is Rs. 5 lakhs and its total assets showed in the balance -sheet are about Rs. 64 lakhs including the shares already mentioned,. In the previous years relevant to the two assessment years, the assessee paid sums of Rs. 1,69,085 and Rs. 2,04,333 respectively as interest on the capital borrowed for the purchases of the shares. During the relevant years, there was no income at all from those shares and the assessee claimed to set off these payments of interest against it other income in respect of the relevant assessment years. The Income -tax Officer dismissed the claim observing as under :

(2.) THE Appellate Assistant Commissioner also took the same view and the assessee carried the mater in appeal to the Tribunal. The Tribunal held that the investment by the assessee in the shares of Gannon Dunkerley and Co. Ltd. was not a business venture. On a fair reading of the statement of the case and the order of the Tribunal, it is clear to us that the Tribunal has treated this purchase by the assessee company as 'investment' by the assessee in the shares of Gannon Dunkerley and Co. Ltd. It rejected the claim of the assessee for set off on the ground which we may set out in the words used by the Tribunal itself :

(3.) THEN the Tribunal goes on to hold that the interest was not allowable deduction under section 10(2)(iii) of the Income -tax Act. Then it adds :