COMMISSIONER OF INCOME TAX Vs. NAWN ESTATES PVT LTD

JUDGEMENT

(1.) THIS reference under s. 66(2) of the IT Act raises the following question for answer by this Court :

(2.) THE facts giving rise to the above question are briefly as follows : THE assessee is a private limited company owning immovable properties, some leasehold and some shares. THE statement of case relates to the asst. yr. 1958-59, and the corresponding previous year is the financial year ended on the 31st March, 1958. For the asst. yr. 1958-59, in addition to income from property and shares, the assessee had received Rs. 20,000 as guarantee commission for standing as a guarantor to the Central Bank of India Ltd. in respect of the loans advanced by that Bank to M/s Bengal Fine Spinning and Weaving Mills Ltd., an associate concern of the assessee-company. THE guarantee commission was included in the total income of the assessee- company for the asst. yr. 1958- 59, by the AAC as a result of disclosure by the assessee. THE guarantee given by the assessee-company to the Central Bank of India Ltd. was supported by the security of a building called "Mercantile Building" which belonged to the assessee. Now, in respect of that building the assessee paid municipal taxes aggregating to Rs. 64,863, out of which Rs. 35,291 was allowed in determining the income under the head "property" under s. 9 of the IT Act. THE assessee contends that the balance of Rs. 29,572 should be allowed as a deduction against the guarantee commission on the ground that the guarantee commission was earned by the assessee- company on the security of the said building. THE contention is that in determining the income, profits and gains under s. 12 all outgoings relating thereto should be allowed. THErefore, the assessee's case is that the taxes on the "Mercantile Building" had been paid by it for the purpose of making or earning the guarantee commission on the security of that building and therefore is deductible. THE Tribunal applied the Privy Council's decision in Probhat Chandra Barua vs. CIT (19530) 5 ITC 1 ; AIR 1930 PC 209and upheld the claim of the assessee on the point. What the Tribunal, however, held was that since the whole amount of Rs. 29,572 was not referable to the guarantee commission earned, only a sum of Rs. 17,000 out of the said sum which was so referable, should be allowed as a deduction from the guarantee commission. It is on these facts and such statement of the case that the question now comes up for our decision.

(3.) TURNING to the order of the Tribunal itself, it is clearly stated by the Tribunal :