P. B. MUKHARJI, ACTG. C. J.

( 1 ) IN this income-tax reference, under Section 66 (2) of the Indian Income-tax Act, the following question requires an answer from this court:"whether, on the facts and in the circumstances of the case, the inference of the Tribunal that remittances to the U. K. came out of the profits earned in India and that the bank overdraft in India had in fact been utilised in carrying on the assessee's business was sustainable in law and whether on such inference the Tribunal was right in holding that the income-tax authorities were not justified in disallowing any part of the bank's interest on the overdraft ?"

( 2 ) THE facts giving rise to this question lie within a small compass. The assessee is a sterling company and its status is that of a non-resident under the Indian Income-tax Act, 1922. The assessment years involved in this reference are 1958-59, 1959-60, 1960-61 and 1961-62, for which the corresponding previous years are the calendar years 1957, 1958, 1959 and 1960, respectively. The assessee-company owns tea gardens in the taxable territories. This tea is mostly exported to foreign countries. As a non-resident company, it has remitted profits from time to time to the United Kingdom for the purpose of declaration of dividends to its shareholders and the surplus balance has been kept with the bank in the United Kingdom as deposits. During the relevant accounting years the assessee-company paid interest accruing on its overdrafts to the banks in India. For the assessment years under reference, the assessee-company claimed deduction of the amounts of Rs. 26,468, Rs. 11,650, Rs. 4,613 and Rs. 1,840, respectively, as interest paid on overdrafts incurred for the purpose of its business.

( 3 ) THE Income-tax Officer rejected the claim for each of the aforesaid years on the ground that the overdrafts from the banks were not incurred wholly and exclusively for the assessee's business. The matter came up before the Appellate Assistant Commissioner for disposal on appeals by the assessee. Briefly, the Appellate Assistant Commissioner held that the assessee-company made remittances to the United Kingdom by taking overdrafts from the banks in India and the borrowings from the banks in India were partly invested in earning the interest income in the United Kingdom. The Appellate Assistant Commissioner sustained a disallowance of Rs. 18,920 for the assessment year 1958-59, and also maintained in full the disallowance by the Income-tax Officer of the claims for interest for the other years. In other words, the net result of the order of the Appellate Assistant Commissioner is that the assessee-company had claimed interest of Rs. 26,468 which was fully disallowed by the Income-tax Officer, but, as stated above, only a part of it, i. e. , Rs. 18,920, was required to be disallowed. Hence, what the Appellate Assistant Commissioner did was to reduce the Income-tax Officer's disallowance by Rs. 7,548 and directed the Income-tax Officer to modify the assessment for the year 1958-59 accordingly.

( 4 ) THE assessee appealed to the Tribunal. The Tribunal observed that it appeared to be a fact that the profits of the assessee-company of each year could not be promptly remitted to the United Kingdom by reason of the time lag in the matter of obtaining the permission of the Reserve Bank and the availability of funds and because the profits as and when earned were ploughed back into the business itself and could not be readily withdrawn unless replaced by borrowed capital on which the company had depended all along for its business in India. The fact is, as found by the Tribunal, that the profits earned remained in the business and were represented by various assets as set out in the balance-sheet or by way of reduction of its liabilities and when remittances of profits were made, they went out of the business and from that point of view, remittances could not be correctly said to have been made out of loans taken from th

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