Commissioner of Income Tax, Bengal v Mercantile Bank of India Ltd and Others     Income Tax – Company – Capitalisation of profits – Distribution of accumulated profits –
Issue of debentures subsequently redeemed.
Companies having large accumulations of undistributed profits issued debentures to the
holders of their preference shares. The debentures were dated 24 March 1931, and were
repayable at latest on 31 December 1940. They were in fact all redeemed prior to 28 February
1933. All such preference shares, and therefore all the debentures, were held by trustees of
the will of the late Sir David Yule and the transaction was designed to enable them to meet
the very heavy duties payable in respect of his estate:—