INDIAN STEAMSHIP CO LTD Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) WE are grateful to Mr. Sanyal that in arguing this reference he has not taken the time of the Court in pressing for the contention on behalf of his client before the authorities below which is untenable on the face of it.

(2.) THE question arises out of a reference made under s. 66(1) of the IT Act, made by the Calcutta Bench of the Tribunal in respect of the assessments for the years 1945-46 and 1946-47 of the Indian Steamship Company Limited, Calcutta, which is the assessee. It appears that this company was floated in 1928, but existed in a moribund condition up to the accounting year 1943- 44. Indeed, although it purported to be a Steamship Company, its subscribed share capital did not exceed Rs. 3,000 during that period. In the accounting year 1944-45, the company appears to have though of launching upon real business and wanted to issue shares of the value of Rs. 75,00,000 and debentures of the value of Rs. 25,00,000 in order to procure the necessary money for the purchase of ships. Under the Defence of India Rules, as then obtaining, it was necessary to obtain the permission of the Controller of Capital Issues for the issue of both the shares and the debentures as contemplated by the assessee-company. That permission was applied for and obtained, but the Controller imposed a condition that any sum in excess of Rs. 22,50,000 would have to be invested in the new Government of India Loans and sums up to Rs. 22 1/2 lakhs would have to be kept in deposit in a bank, pending actual expenditure on the purchase of the ships. THE statement made by the Tribunal in the statement of the case that the Controller required the entire amount of Rs. 75,00,000 to be invested in Government securities does not appear to be correct. Be that as it may, the assessee company invested a large sum in Government securities which brought it an interest income of Rs. 1,24,986 in the asst. yr. 1945-46 and an income of Rs. 2,80,238 in the second year, viz., 1946-47.

(3.) MR. Sanyal appearing on behalf of the assessee frankly conceded that the construction put by his client upon his debentures before the authorities below and the claim of deduction made upon that construction was extremely far-fetched and he was not prepared to support it before us. Instead he submitted that he would place the claim on another ground altogether and the ground stated by him was that one of the objects mentioned in the memorandum of association of the assessee- company was to invest money in securities. If borrowing money and investing the same was among the authorised objects of the assessee-company, the present borrowing and the present investment might be regarded as having been made in exercise of that power and if it was so regarded, there would be no difficulty in allowing the assessee's claim even under the strict language of s. 8. It is, however, not open to MR. Sanyal's client to make a new case at this stage. It was never then hinted before the authorities below that the debentures had been issued for the purpose of exercising the authority of borrowing and investing, conferred by the memorandum of association. The assessee made one case and one case only and that case was that since the condition imposed by the Controller of Capital Issues necessitated the investment in securities, the borrowing must be regarded as having been made for the purpose of the investment. If that case fails or is given up, there is no other case upon which the claim can be supported at the present stage. As a matter of fact also the assessee did not issue the debentures or raise the share capital for the purpose of investing the money in Government securities, for, as the authorities below have pointed out the debenture interest was far higher than the interest that was payable on the securities and that was paid by the Government. The argument of MR. Sanyal was an argument of despair which, I suspect, he himself realised.