TMI Blog1982 (6) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... tions are: " (1) Whether, on the facts and in the circumstances of the case, and on an interpretation of the agreements entered into by the company with certain financiers, the Tribunal is right in law in treating the medium term dollar loan amounting to Rs. 90,00,000 and dollar loan amounting to Rs. 1,31,86,875 as debentures for the purpose of granting relief under section 80J of the Income-tax Act, 1961 ? (2) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in law in treating the interest income from bank deposits as business income of the assessee for the purpose of section 80J of the Income-tax Act, 1961 ? " At the outset itself we might state that we answer question No. 2 agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1967 was with Philips Petroleum International Corporation. According to the agreement of 1964 the assessee-company will authorise issuance and sale of 12 million U.S. dollars as 51% secured notes series A and the borrowing of 6 million U.S. dollars at the same rate but known as secured notes series B. The notes were to be issued and secured by a deed of trust and mortgage dated July 1, 1964, the mortgage being between the company and the First National City Bank as the trustee and the creditors. The notes would be dated, should mature and should bear interest which shall be payable on such terms and provisions as provided in the mortgage deed and guaranteed by the Govt. of India in pursuance of the terms of the guaranteed agreements dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r by any of them, from time to time as often as occasion may arise, as well as by PPIC. No doubt this agreement is addressed to one financier and after the commissioning of the business. To that extent it is different from the 1964 agreement. Verbal changes are there on account of this fact. The 1964 agreement has been followed by a mortgage and trust deed. There is no such deed in respect of 1967 agreement, but as noted earlier, there is a guarantee by the President of India as the holder of the majority of the stock of the company. The President of India had unconditionally guaranteed the holder of the note the punctual payment of the interest and the repayment of the principal. There is no difference at all in the wordings in both the gu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loan amounts from the aggregate value of the assets in the ascertainment of capital. Thus the relief under s. 80J was worked out on a smaller figure than what was claimed by the assessee. The assessee-company appealed as, according to them, the two loans represented debentures. Their contention was, however, rejected and the appeals were dismissed by the AAC. However, on further appeal by the assessee-company to the Income-tax Appellate Tribunal, the Tribunal found that both these loans are debentures and the assessee's contention was accepted. This decision gave rise to the application for reference and the subsequent reference of the question by the Tribunal to this court. The short question that really arises for our consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : " I cannot find any precise legal definition of the term, it is not either in law or commerce a strictly technical term, or what is called a term of art. " Palmer quotes the same judge stating in another case, Edmonds v. Blaina Furnaces Co. [1887] 36 Ch D 215 at p. 219: " The term itself imports a debt-an acknowledgment of a debt-and speaking of the numerous and various forms of instruments which have been called debentures without anyone being able to say the term is incorrectly used, I find that generally, if not always, the instrument imports an obligation or covenant to pay. This obligation or covenant is in most cases at the present day accompanied by some charge or security." After quoting these decisions the learned au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use this term when referring to bills of exchange or other negotiable instruments, deeds of covenant and many other documents in which a company stipulates to pay a sum of money. " A debenture is certainly a document which either creates a debt or acknowledges it. While it may usually be one of a series, it need not necessarily be so. As Palmer has pointed out, a single debenture may be issued to one party. As Chitty J. in Edmond's case [1887] 36 Ch D 215 and a Division Bench of the Bombay High Court in Laxman Bharmaji v. Emperor, AIR 1946 Bom 18; 16 Comp Cas 31, 34 point out : " In determining what is or is not a debenture within: the section we are not bound to hold that an instrument is a debenture because it is called a debenture ..... X X X X Extracts X X X X X X X X Extracts X X X X
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