TMI Blog1947 (8) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... mortgage debentures of the total value of ₹ 83,000 divided into 830 debentures of ₹ 100 each, bearing interest at 6? per cent. per annum, subject to tax payable on the 1st April and on the 1st October of each year. The existing and future property and assets of the company were charged with payment of the principal and interest due under the debentures. In August, 1941, the company having arranged to purchase electrical energy in bulk from the Government Hydro-Electric Works sold its superfluous plant and machinery for ₹ 28,000 and odd, and it was decided with the consent of the debenture holders that that sum should be utilised by the company for purchasing its own debentures in the name of the debenture trustee to be he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section, so far as material here, runs thus:- Any deduction made in accordance with the provisions of this section....shall be treated as a payment of income-tax or super-tax on behalf of the person from whose income the deduction was made, or of the owner of the security..... It is to be noted that the tax deducted under Section 18 and paid to the Government is to be treated as paid on behalf of the owner of the security in respect of which the deduction was made. The Income-tax Officer rejected the application on the ground that the company, having transferred the debentures in question to the debenture trustee, was no longer the beneficial owner of the debentures, and was accordingly not entitled to claim refund of tax d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the debentures held by the trustee in his name. On behalf of the Commissioner of Income-tax it was urged that the view taken by the Tribunal as to the beneficial ownership of the debentures purchased in the name of the trustee was erroneous, and that, on a true view of the facts, the trustee must be regarded as holding the debentures on behalf of the general body of debenture holders who were therefore the beneficial owners. I am unable to agree. The funds utilised in the purchase of these debentures being the sale proceeds of the company's plant and machinery belonged to the company as part of its assets subject, no doubt, to the mortgage created under the debenture trust deed as substituted security. The position is essentially ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benture bonds with its bankers as security for the overdraft in its current account, and the question arose, on the company's assessment to income-tax on its income from buildings which had been mortgaged under the debenture trust deed, whether the company was entitled to an allowance in respect of the interest payable under the debentures deposited with the bankers. Their Lordships, in disallowing the claim, referred to the interest payable under the debentures as a segregated asset of the company in the hands of the bank, being part of the charged property applicable in a particular way and as standing from the bank's point of view in no different position from interest received or receivable by it from debentures of an outside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lication of Section 48(1) to the facts of the present case. The interest paid to the trustee was not his income chargeable to tax under the Act, and no deduction at source fell to be made by the company under Section 18(5) of the Act. It is true that deductions on account of tax were, in fact, made and paid to the credit of the Central Government under that section; but they cannot be regarded as tax paid by the company in the sense of being payable and paid by it, nor be treated as paid on its behalf for the period in question. The sums deducted and paid to the Government could be regarded if at all, only as the tax deducted and paid out of the income of the trustee, and he would be the person entitled to apply for a refund under Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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