TMI Blog1952 (12) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... cent. per annum. They were for a period of forty years and therefore were redeemable in the year 1956. There was a condition however that the assessee company was at liberty at any time after the 1st of July, 1921, to give notice of its intention to pay off any particular debentures and after the expiration of six months from such notice being given the debentures became payable together with the bonus of 5 per cent. It appears that this power to redeem was exercised in the case of certain debentures, and in the year 1946, in view of the lesser rate of interest prevailing, the assessee company resolved to redeem all outstanding debentures and to issue a fresh set of debentures bearing interest at 4 per cent. only. Notices were accordingly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r on the facts and circumstances of the case the bonus paid to the debenture-holders on redemption of the debentures was an expenditure laid out for the purpose of the business as contemplated in section 10(2)(xv) of the Indian Income-tax Act, 1922? Mr. Sethi for the assessee has urged that the payment of bonus was payment of interest falling within Section 10(2)(iii). Apart from the circumstance that this is not a matter covered by the reference made to us, in my opinion the contention could not be accepted. Clause (2) of Section 10 contains the allowances which may be deducted from profits and gains of a business taxable under clause (1) of that section and sub-clause (iii) of clause (2) sets out one of those allowances, namely the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing through of the redemption involved substantial expenditure, this expenditure including the premia payable to the bond-holders, certain exchange expenses, commission and so on, and the company decided to spread these charges over a period of twelve years involving a charge in their accounts of a certain amount annually against income. The result of the operation was a considerable saving in interest charges with of course a lesser amount to be deducted as interest charges for future income-tax allowances. The company claimed that the annual deduction made by them for the expenses incurred in this operation was a claimable allowance. It was held by the Privy Council that it was not. While as I have said on the facts the case is on all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ws:- It was conceded in the courts in Canada, and in any event it is clear, that the expenses incurred by the appellants in originally borrowing the money represented by the bonds subsequently redeemed were properly chargeable to capital and so were not incurred in earning income. If the bonds had subsisted to maturity the premiums and expenses then payable on redemption would plainly also have been on capital account. Why then should the outlays in connection with the present transactions, compendiously described as 'refunding operations', not also fall within the same category? Their Lordships are unable to discern any tenable distinction. In the history of both companies the financial re-adjustment of their borrowed capital w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the Anglo Persian Oil Company case [1932] 1 K.B. 124 where compensation paid to their agents upon termination of their agencies was held to be a revenue disbursement allowable to the principal company; also to Scammell Nephew v. Rowles [1939] 1 All E.R. 337: 8 I.T.R. Suppl. 41, where a sum paid as the price of getting rid of a life director whose presence on the board was regarded as detrimental to the business was allowed as a revenue expenditure. These cases I think are distinguishable from the present. It is true that the expenditure made by the assessee company was perfectly legitimate and was in fact an act of prudent management, but the propriety of expenditure is not the criterion upon which its allowance under Section 10(2) is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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