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TMI Blog1989 (11) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... purchased some machinery and sent it to India to its collaborator for installation of the same in its factory premises. In settlement of this liability, the assessee was allotted certain shares in Widia (India) Limited, for a sum of Rs. 24 lakhs and the balance was treated by Widia (India) Limited as a loan from the assessee. The assessee claimed a deduction of a sum of Rs. 2,38,430 as interest paid on borrowings made for making investment in shares in Widia (India) Limited. The Income-tax Officer rejected the claim as he was of the view that interest can be allowed only if there was some income under the head "Dividend" but there was no such income in the assessee's case. He further held that the expenses could be allowed only if the income in respect of which such expenditure had been incurred was liable to tax. He found that the dividend receivable from the Indian company was exempt under section 80K of the Act and it was not liable to tax and, therefore, interest paid on investment in shares could not be allowed as an expenditure for the purpose of computing the assessee's income. So, he disallowed the interest of Rs. 2,38,430 for the assessment year 1972-73 and allowed Rs. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 58 overrides section 57 and declares that certain amounts shall not be deductible in computing the income chargeable under the head "Income from other sources", namely, any interest on moneys borrowed for investment when such interest is payable outside India to a non-resident and the deduction would not be permitted unless the payer of interest deducts tax thereof at the time of payment or, secondly, the tax is paid by the nonresident, or, thirdly, there is some person in India who may be treated as statutory agent of such non-resident, the only exception being in respect of loans issued for public subscription before April 1, 1938. It is clear from a perusal of the provisions that deduction of tax is required only with view to charging interest in India, not otherwise. Where the loan is transacted outside India and the borrower brings the money into India with the knowledge of the lender, the lender is chargeable to tax in respect of the interest he receives by reason of section 9(1)(i) of the Act. In that event, interest paid by the borrower is not allowable as a deduction even though the tax has not been deducted therefor. However, Shri Sarangan, learned counsel for the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ware of the investment made by the assessee-company in shares of Widia (India) Ltd and that could be construed as establishing an arrangement which must be an obligation on the assessee to invest in shares of Widia (India) Ltd. and, in the absence of such arrangement or device adopted by the assessee and the Swiss Bank Corporation, the provisions of section 9(1) were not attracted and, consequently, the interest in question should not be disallowed on the basis of section 58(1)(a)(ii) of the Act. The two questions that emerge for consideration are, firstly, what is the effect of the letter dated February 19, 1974, written by the Swiss Bank Corporation to the assessee and, secondly, whether the importation of the money borrowed in cash or kind is confined to currency alone in the light of the provisions of section 9(1) of the Act. For a proper appreciation of the first limb of the problem, we will set out the letter sent by the Swiss Bank Corporation "Swiss Bank Corporation M/s. Meturit A. G. Seefeldstrasse 7 8008 Zurich Our dept/ref Credits 2501 Bienne, February 19th, 1974. We have granted to you credit line utilised on 3-5-1966 with Swiss Francs 547,586.15 10-6-1966 wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or means of payment (see : Webster's Third New International Dictionary, Volume 11 - 1976 Edition). "Currency" is understood to include all coins, notes, bank notes, postal notes, money orders, cheques, bank drafts, travellers' cheques, letters of credit, bills of exchange, promissory notes as per section 2(f) of the Foreign Exchange Regulation Act, 1973. Cash is understood to be ready money such as coin, public money or instrument as token of money like a cheque or draft. The expression "in kind" is defined in most of the dictionaries as goods or commodities as distinguished from money, that is, an economic measure which is other than cash. The Calcutta High Court's view confines the concept of money only to currency. When the section specifically states that importation of borrowed money in cash or kind, the idea is that there should have been lending of money as a loan and not a mere debt arising out of a transaction such as balance of unpaid price of goods on sale. Money in the broadest sense would mean currency. Cash and kind are always understood to mean one as ready money and the other as not merely other types of currency but as goods or commodities as distinguished from mo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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