BOMBAY STEAM NAVIGATION CO. (1953) PRIVATE LTD. versus COMMISSIONER OF INCOME-TAX, BOMBAY

Citation: [1965] 1 S.C.R. 770 · Decided: 21-10-1964 · Supreme Court of India · Bench: K. SUBBA RAO · Disposal: Appeal(s) allowed
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Judgment (excerpt)

770 
BOMBAY STEAM NAVIGATION CO. (1953) PRIVATE LID. A 
v. 
COMMISSIONER OF INCOME-TAX, BOMBAY 
October 21, 1964 
(K. SUBBA RAO,_ J. c. SHAH ANDS. M. SlKRI JJ.) 
Income Tax Act, 1922 (11 of 1922), s. 10(2) (iii)-lntemt paid on 
unpaid balance of purchase price of assets acquired for a business-Whether 
such unpaid balance amounts to a loan-There/we whether interest allow-
able as a deduc1ion on borrowed capi1a/--Or whether allowable as a deduc-
tion under s. 10(2) (xv). 
· 
The assessec company was incorporaled with the object of taking over 
certain passenger and ferry services on lhe Konkan Coast. The assessee 
company purchased the assets required for its business fl'om the Scindia 
Steam Navigation Company and paid part of the consideration by allotting 
its own fully paid shares, leaving the balance unpaid. 
It was provided in 
the contract of purchase that interest at 6 per cent per annum would be 
paid to the Scindia Company on any unpaid balance until the whole of ii 
was fully paid. 
The Income Tax authorities disallowed the claim of the assessee com-
pany in the computation of its profits and gains for deduclion of such 
inleresl paid to the Scindia Steam Navigation Company, and the Hiih 
Court affirmed that \iew. 
HELD : lnlerest paid by the assessee company was a permissible deduc-
tion under s. 10(2) (xv). [779 F-0) 
B 
c 
D 
Per Shah and Sikri JJ.-By s. 10(2)(iii) only interest paid in respect of 
capital actually borrowed for the purpose of the business, profession or 
vocation, is a permissible allowance. An agreemeo[ to pay the balance of 
E 
consideration due by the purchaser does not give rise to a loan. Although 
a Joan of money undoubtedly results in a debt, every debt docs not involve 
a loan. 
Io this case the unpaid balance did not amount to capital borrow-
ed and the interest paid thereon could not lherefore be allowed as a deduc-
tion under s. 10(2)(iii). [774 H; 775 B-C; 776 C-DJ 
Metro Theatre Bombay Ltd. v. C./.T., (1946) 14 I.T.R. 638 and 
V. Ramaswami Ayyangar and another v. C.l.T., Madras, (1950) 18 l.T.R. 
F 
150, referred to and approved. 
C.l.T., Madras v. S. Ramsay Ungar, (1947) 15 l.T.R. 87, distinguish-
ed. 
Subba Rao J. reserved his opinion on the application of cl. (iii) of 
sub-5. (2) of s. 10 of the Indian Income·lax Act, 1922 to the claim for 
deduction of the interest paid. [771 BJ 
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 1023-
1024 of 1963. 
Appeals from the judgment and order dated August 9, 1962, 
of the Bombay High Court in Income-tax Reference No. 3 of 
1961. 
A. V. Viswanatha Sastri, T. A. Ramachandran, J. B. Dada-
chanji, 0. C. Mathur and Ravinder Narain, for the Appellant (in 
both the appeals). 
G 
H 
BOMBAY STEAM NAVIGATION CO; \I, C.I.T. (Shah J.) 
771 
A 
C. K. Daphtary, A1torney·General, K. N: Rajagopala Sastri, 
R; H. Dehbar and R. N. Sachthey, for the respondent (in bo!h 
the appeals)·. 
B 
The Judgment of J. C. Shah and S, M: Sikri· JJ1 was· delivered 
by Shah J. 
Suhba Rao J. 
I agree with the conclusion, but I would 
prefer not to express my view on the construction. of cl. (iii) of 
suh-s. (2) of s. 10 of the Indian Income-tu. Act, 1922 . 
. Shah J. The Bombay Steam Navigation Company Ltd. 
c whicli plied its passenger and ferry services on the Konkan coast 
and in the Bombay harbour was amalgamated with effect from 
June 30, 1952 with ·the Scindia Steam Navigation Company 
Ltd.-hereinafter called "the Scindias". The scheme of amalga-
mation was sanctioned by the High Court of Bombay and the 
Scindias were authorised by the scheme· to float· and· establish a 
D 
joint stock company with the object of taking over the services 
on the Konkan coast and· in the Bombay haibour which were 
originally plied by the Bombay Steam Navigation Co; Ltd. Pur-
suant to this authority the Bombay Steam Navigation· Co: ( 1953) 
Private Ltd.-hereinafter called· "the assessee Company" was in-
corporated on August 10, 1953; The assessee Company con-
E 
tracted wi~h the Scindias on August 12, 1953 to purchase·certain 
steamers, launches, boats, barges, buildings, flirniture, fiXtures · 
and've)iicles for a consideration provisionally estimated' at- Rs. 80 
lakbs. 
It was provided by the agreement that the price of. the 
assets rold will b6 satisfied by allotmentto the Scindias of 29,900 
F . shares credited as fully. paid-up of. the face value of Rs. U>tl each 
in the share capital. of the assessee Company; and'. the· balance 
will be treated by the· asscssee Company
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