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Issues:
1. Deductibility of interest paid on borrowed capital used in a branch outside British India for taxation purposes. Analysis: The case involved a business conducted by a Nattukkottai Chetti in Madras and Ipoh, with borrowed capital used in both locations. The Commissioner allowed deductions for interest paid on borrowed capital for branches in British India but disallowed deductions for interest paid on capital remitted to the Ipoh branch. The main issue was whether the interest on capital sent to Ipoh was deductible for taxation purposes under the Income Tax Act. The relevant section of the Income Tax Act allowed deductions for interest paid on capital borrowed for the business. The critical question was whether the capital borrowed for the Ipoh branch could be considered as borrowed "for the purposes of the business." The court analyzed the meaning of "the business" in the context of the Act, emphasizing that deductions should represent expenses necessary to earn taxable profits. The court rejected the argument that capital borrowed and immediately remitted to Ipoh could be considered as borrowed for the business in British India. Another argument considered was whether the Madras business could be seen as financing the Ipoh branch. However, the court found no evidence that profits from Ipoh were remitted to Madras during the relevant year. The judges highlighted that allowing deductions for interest in such circumstances would go against the intent of the Act, which aimed to tax profits of the business being assessed in the year under consideration. Therefore, the court dismissed the reference, stating it raised no arguable question of law, and awarded costs to the Crown.
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