Central London Railway Company v Commissioners of Inland Revenue
London Electric Railway Company v Commissioners of Inland Revenue
Metropolitan Railway Company v Commissioners of Inland Revenue    Income Tax – Debenture interest charged to capital account under private Act – Whether
“payable wholly out of profits or gains brought into charge” – Right of company to retain
income tax deducted from interest – All Schedules Rules rr 19, 21.
A company, as empowered by a private Act of 1930, raised £850,000 by an issue of
debenture stock. By s 118 of the private Act, the company was allowed to charge to capital
account the interest accruing till 1935 on money so raised. Interest, subject to deduction of
income tax, was duly paid partly out of capital and was so debited in the company’s accounts.
An assessment to income tax was made in respect of the said interest on the ground that it had
not been paid out of profits brought into charge to income tax. The company maintained that
it was entitled to retain as its own the tax deducted from the interest on the ground that, as
there was income in its hands already subjected to tax which it could have used to pay the
interest, the payment of interest debited to capital in the company’s accounts ought to be
treated as having been paid out of taxed profits:—