TMI Blog1973 (9) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... Avers and Arlt, Bremmen, Netherlands, for unpaid purchase money of the ship was an allowable deduction under section 37(1) of the Income-tax Act, 1961?" One Alagusundaram Chettiar purchased a ship by name "Hugo Arlt" from M/s. Avers and Arlt, Bremmen, Netherlands. The purchase was with the approval of the Government of India. Alagusundaram Chettiar, thereafter, renamed the ship as "M. V. Dhanalakshmi". He had agreed to pay the purchase price to the non-resident vendor in instalments with interest on the unpaid purchase consideration at 6% per annum. The assessee is a company incorporated under the Indian Companies Act. The assessee-company purchased the ship from Alagusundaram Chettiar undertaking the liability to pay the instalments due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er this Act, the bar created under section 40(a)(i) is not attracted and the interest amount paid by the assessee is an allowable deduction under section 37(1) of the Income-tax Act, 1961. The order of the Appellate Assistant Commissioner is confirmed." Section 37(1) allows deduction of any expenditure laid out or expended wholly and exclusively for the purposes of the business or profession in computing the income chargeable under the head "Profits and gains of business or profession". Sections 28 to 44A occurring in Chapter IV of the Income-tax Act provide for computation of total income under the head "Profits and gains of business or profession". Section 40(a)(i) provides that any interest chargeable under the Act and payable outside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .-(1) The following incomes shall be deemed to accrue or arise in India- (i) all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through or from any money lent at interest and brought into India in cash or in kind or through the transfer of a capital asset situate in India." The interest payable by the assessee-company to the non-resident is certainly an income coming within the purview of section 9(1)(i) extracted above so far as the non-resident is concerned. The Tribunal also proceeded on that basis. In annexure "D" order, the Tribunal said: " The interest amount pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ully be extracted here: "The fact is that, if the Income-tax Acts are examined, it will be found that the person charged with tax is neither the trustee nor the beneficiary as such, but the person in actual receipt and control of the income which it is sought to reach. The object of the Acts is to secure for the State a proportion of the profits chargeable, and this end is attained (speaking generally) by the simple and effective expedient of taxing the profits where they are found." Bearing this principle in mind we will examine the provisions of the Act in Chapter XVII. The chapter provides for collection and recovery of tax. The first provision that is to be noticed for the purpose of this case is section 195. Under that section a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of raw materials or capital plant and machinery, to the extent and subject to the conditions mentioned in that section is not to be included in computing the total income of the person carrying on the industrial undertaking. That provision reads: "10. (15)(iv) interest payable....... (c) by an industrial undertaking in India on any moneys borrowed or debt incurred by it in a foreign country in respect of the purchase outside India of raw materials or capital plant and machinery, to the extent to which such interest does not exceed the amount of interest calculated at the rate approved by the Central Government in this behalf, having regard to the terms of the loan or debt and its repayment." In our view the assessee-company is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orrectness of the above finding. It is also not necessary for the present case, for that reasoning is not available to the assessee-company for the reason already stated, namely, the assessee-company has neither borrowed any money nor incurred any debt in a foreign country. The learned counsel for the assessee-company then submitted that the assessee-company is entitled to invoke section 36(1)(iii) of the Act which provides that any amount of interest paid in respect of capital borrowed for the purposes of the business or profession is liable to be deducted. The submission is that this is an amount which the assessee-company is liable to pay in respect of the capital borrowed by the assessee-company for the purposes of business or profes ..... X X X X Extracts X X X X X X X X Extracts X X X X
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