COMMISSIONER OF INCOME TAX Vs. BOMBAY SAMACHAR LIMITED

JUDGEMENT

(1.) THE following question, which has been raised on this reference under section 66 (2) of the Indian Income -tax Act, 1922, arises out of the assessments of the assessee for the assessment years 1953 -54 to 1956 -57 : 'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the interest paid by the assessee -company on its borrowing during the assessment years 1953 -54 to 1956 -57 was an admissible deduction under the Indian Income -tax Act ?'

(2.) THE assessee is carrying on business as publishers of a Gujarati newspaper called 'Bombay Samachar'. Two other concerns, viz., M/s. Bombay Chronicle Pvt. Ltd., which was publishing a paper called 'Bombay Chronicle' and M/s. Bombay Associated Newspapers Ltd., which was publishing a newspaper called the 'Bombay Sentinel', were sister concerns of the assessee. In the year 1939, it was considered desirable by these three concerns to incur certain items of common expenditure jointly and allocate the same among themselves in an agreed manner. Accordingly, the board of directors of each of the three concerns passed appropriate resolutions resolving that expenditure on certain items incurred by any one or the other of the three companies should be allocated at the end of every year in proportion to the amount of revenue earned by them from sales and subscriptions during the respective years. Another such resolution was passed in the year 1940 adding to the items of common expenditure. This arrangement was carried on for a number of years and accounts were made and expenditure at the end of each year was allocated to the respective parties. In the years with which we are concerned, viz., the calendar years 1952, 1953, 1954 and 1955, in the accounts of the assessee debit balances were shown with the Bombay Chronicle Pvt. Ltd. The closing balance at the end of the year 1952 was Rs. 2,47,225; at the end of the year 1953 it was Rs. 1,88,851 and at the end of the subsequent years it was Rs. 2,85,375 and Rs. 2,78,026 respectively but no interest was charged by the assessee on the aforesaid debit balance. In these years the assessee had paid interest on borrowed capital to outsiders. One of these creditors was Cama Norton and Co., which was composed of persons interested as shareholders in the assessee company. This company had discharged the loans which had been borrowed earlier by the assessee from various parties against securities and for which pressure was brought upon the assessee for repayment of the loans. The total amount of interest paid in the years with which we are concerned is as follows : Calendar year AmountRs.1952 25,109 -3 -01953 22,243 -0 -01954 22,139 -0 -01955 11,791 -13 -0

(3.) IN our opinion the view taken by the Tribunal is correct and must be upheld. From the facts which have been already stated, it will be clear that the balance due from the Bombay Chronicle Pvt. Ltd. was not in respect of any loans advanced by the assessee to it, as considered by the Income -tax Officer and the Appellate Assistant Commissioner. The said balance was respect of the common account between the parties in connection with the expenditure in relation to the business agreed to be incurred in common and allocated in shares at the end of the year. Similarly the amount due from Messrs. Cama Norton and Co., in the calendar year 1954, did not constitute any loan advanced by the assessee to Messrs. Cama Norton and Co., but constituted the outstandings in connection with certain business transactions. The capital borrowed by the assessee from outsiders on the other hand was admittedly used by the assessee for the purpose of its business and it was also undisputed that no part of the borrowed capital had been utilised for the purpose of advancing loans either to Messrs. Bombay Chronicle Pvt. Ltd. or to Messrs. Cama Norton and Co. In these circumstances, it is difficult to see how the assessee's claim for the interest actually paid by it could be disallowed. In Calico Dyeing and Printing Works v. Commissioner of Income -tax it has been observed : 'Where the assessee claims deduction of interest paid on capital borrowed under section 10 (2) (iii) of the Income -tax Act, all that the assessee has to show is that the capital which was borrowed was used for the purposes of the business of the assessee in the relevant year of account. It does not matter whether the capital is borrowed in order to acquire a revenue asset or a capital asset. If the capital is used in the year of account and the use is for the purpose of the business of the assessee, it is immaterial whether the user of the capital actually yielded profit or not and it is not open to the department to reject the claim of the assessee in respect of the interest paid on that capital merely because the use of the capital is unremunerative.'