Murray Coutts Trotter, Kt., C.J.
1. In this case there was carried on a business by a Nattukkottai Chetti at various places of which the only two relevant ones are Madras, where his head office was, and Ipoh, a place in the Fedrated Malay States. The short point is this. Money was borrowed by the assessee in Madras and of course interest has to be paid on it in Madras. Part of that money--it does not matter how much because that is a question of fact for the Commissioner who has found a figure--was in effect sent out to Ipoh and was used as capital in the conduct of the Ipoh business. Apparently in all the businesses this gentleman relied on borrowed capital and not his own. Deductions are claimed in this case in respect of the interest paid by the assessee to the persons from whom he borrowed his capital and the Commissioner, has given effect to these deductions so far as they affect the branches in British India, but he disallowed the deduction in respect of the interest paid on such sums of money as were remitted for capital to the Ipoh branch, a sum in all of Rs. 60,000.
2. The words of section are:
Such profits or gains (i.e., the taxable profits or gains of the business) shall be computed after making the following allowances
and then comes (iii)
in respect of capital borrowed for the purposes of the business where the payment of interest thereon is not in any way dependent on the earning of profits, the amount of the interest paid.
3. The only words that it is necessary to consider for the, purpose of this case are the words at the beginning 'in respect of capital borrowed for the purposes of the business'. The question is, can this capital be said to be borrowed 'for the purposes of the business.' What is the business? Obviously the business whose profits are being assessed to taxation, the whole scheme of the section, as I understand it, being that the deductions to be made are such deductions as represent sums of money which it is necessary to pay out in order to earn the very profits which are under review to be taxed, such as any rent paid for the premises in which such business is carried on and repairs. I put it to Mr. Mr. K. S. Krishnaswami Aiyangar, whether he would seriously contend that repairs to the place of business in Ipoh or rent paid for office rent in Ipoh were legitimate deductions here. The answer is obvious that of course they cannot be. This appears to be ejusdem generis for the reason that 'the business' is only the business in British India, the income of which alone is liable to be taxed. With the argument that the capital borrowed for the purposes of the business will include any sum of money which at the moment it was borrowed was put into the coffers of the particular business in British India and that therefore it did not matter if the whole of it was taken out next day and sent to China, I do not think it is really necessary to deal, because it must be taken that, when a business man borrows money on which he has to pay interest and at once remits it or part of it to the Ipoh branch, the object of borrowing the money was to finance qua that sum the Ipoh branch and I may add that if necessary I should be prepared to hold that the only reasonable construction of the section is to construe 'capital borrowed for the purposes of the business' as meaning capital borrowed and used for the purposes of the business.
4. The next and much more attractive way of putting it was this : that the business carried on in Madras was in one of its ramifications the business of financing the Ipoh branch; but then that would involve, I think, that to treat the business as of that nature in Madras it would be necessary to find that all the profits of the Ipoh branch were automatically remitted to Madras and came here and that the Madras office was notionally running in its Madras Office the business at Ipoh. There is no evidence of that; on the contrary the finding of the Commissioner is that no part of the profits made during this year at Ipoh were sent from Ipoh to Madras. As my brother Beasley pointed out in the course of the argument, no doubt what will doubtless happen will be that when the three years defined by Section 4 (2) of the Act have elapsed the profits will be sent to British India, as by then they will not be obnoxious to the tax. However that is what the Act permits and the Income-tax Officers are powerless to prevent it. But to allow deductions in respect of interest on borrowed capital in such a state of affairs as we have to consider here would be to my mind inconsistent with the whole tenor and language of the Act, and in my view 'the business' means the business whose profits are being assessed and whose profits are being assessed moreover in the year under consideration. In my opinion this reference has no substance in it and should be dismissed as it raises no arguable question of law. The Crown will have its costs Rs. 250.