JUDGMENT T. Chandrasekhara Menon, J. 1. Two questions have been referred to this Court under S.256(1) of the Income Tax Act, 1961, by the Income Tax Appellate Tribunal, Cochin Bench, which are said to arise from an order of the Tribunal disposing of the appeals filed by the assessee, Cochin Refineries Ltd., Ambalamugal and the department for the assessment year 1971-72. The two questions are: (1) Whether, on the facts and in the circumstances of the case, and on an interpretation of the agreements entered into by the Company with certain financiers, the Tribunal is right in law in treating the medium term dollar loan amounting to Rs. 90,00,000 and dollar loan amounting to Rs. 1,31,86,875 as debentures for the purpose of granting relief under S.80J of the Income Tax Act, 1961? (2) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is right in law in treating the interest income from bank deposits as business income of the assessee for the purpose of S.80J of the Income Tax Act, 1961?" 2. At the outset itself we might state that we answer question No. 2 against the assessee and in favour of the revenue in view of the decision of this Court in regard to the same assessee in respect of the assessment year 1970-71 when the same question was referred to this Court in I.T.R. Nos. 71 and 72 of 1977. This Court said there [the decision is reported in C.I. T. v. Cochin Refineries Ltd. (1982 (135) ITR 278)]: "The derivation of the income must be directly connected with the business in the sense that the income is generated by the business. It would not be sufficient if it is generated by the exploitation of a business asset. In the case before us, the income by way of interest from the deposits is no doubt an income derived by investing surplus cash of the assessee generated as profits of the industrial undertaking. But, it is not money derived from the business activity of the industrial undertaking but by the business activity of deposit of the business asset in banks. Within the meaning of the term "derived from" it will not be possible to hold that the income so generated is the income falling within S.80J." 3. We may now refer to the relevant facts necessary for consideration of the second question. Within the meaning of the term "derived from" it will not be possible to hold that the income so generated is the income falling within S.80J." 3. We may now refer to the relevant facts necessary for consideration of the second question. The assessee is a Public Limited Company in which the Government of India is a shareholder. The assessee had entered into agreements with financiers in the United States called Loan and Notes purchase agreements on 1st July, 1964 and on 31st December, 1967. The agreement on 1st July, 1964 was with from different financiers. The agreement in 1967 was with Phillips Petroleum International Corporation. According to the agreement of 1964 the assessee Company will authorise issuance and sale of 12 million U.S. dollars as 5 3/4 per cent secured Notes series A and the borrowing of 6 million U.S. dollars at the same rate but known as Secured Notes Series B. The notes were to be issued and secured by a deed of trust and mortgage, dated 1st July, 1964, the mortgage being between the Company and the First National City Bank as the Trustee and the creditors. The notes would be dated, should mature and should bear interest which shall be payable on such terms and provisions as provided in the mortgage deed and guaranteed by the Government of India in pursuance of the terms of the guaranteed agreements, dated 1st July, 1964. The Controller of Capital Issues has consented to the issue. It is specifically defined in the agreement that the term "Notes" shall mean any note authenticated and delivered under the said indenture, it being the intention that the expression shall have the same meaning as "debentures" under Indian Law. 4. As per the agreement of 1967 the assessee Company agreed to borrow from the Phillips Petroleum Company upto U.S. Dollars 2,500,000 in accordance with the terms of the agreement and to issue its 6 per cent Notes in the total principal amount to evidence such borrowings. The Notes were in the form attached thereto as Ext. 1 to the agreement. They would be guaranteed by the Government of India pursuant to the terms of the guarantee agreement. The Notes were in the form attached thereto as Ext. 1 to the agreement. They would be guaranteed by the Government of India pursuant to the terms of the guarantee agreement. As per the guarantee agreement, the President of India unconditionally guaranteed the holder of the Notes the due and punctual payment of (i) the principal of, whether at maturity, upon acceleration of maturity or otherwise, and the interest on and the premium, if any, on payment thereof (ii) any additional sums payable on account of any 'Income tax' as defined therein, (iii) any amounts payable by the Company under the Loan and Note Purchase Agreement and (iv) any expense incurred in the protection of the rights of the holder. It was also provided by the guarantor that the agreement is made for the benefit of P.P.I.C. and of the several holders from time to time of the Notes and it may be enforced directly by the holders of such Notes or by any of them from time to time as often as occasion may arise, as well as by P.P.I.C. No doubt this agreement is addressed to one financier and after the commissioning of the business. To that extent it is different from the 1964 agreement. Verbal changes are there on account of this fact. The 1964 agreement has been followed by a mortgage and trust deed. There is no such deed in respect of 1967 agreement, but as noted earlier, there is a guarantee by the President of India as the holder of the majority of the stock of the company. The President of India had unconditionally guaranteed the holder of the Note the punctual payment of the interest and the repayment of the principal. There is no difference at all in the wordings in both the guarantee agreements excepting as required by the change in situations. The Reserve Bank had also given a guarantee to the U.S. lenders P.P.I.C. which guarantee is also identical in words and contained with that given by the Reserve Bank for the loans in 1964. The Notes are also identically worded excepting for some minor changes. The Reserve Bank had also given a guarantee to the U.S. lenders P.P.I.C. which guarantee is also identical in words and contained with that given by the Reserve Bank for the loans in 1964. The Notes are also identically worded excepting for some minor changes. We might note here that the Revenue has also proceeded on the basis that the Notes issued as per both the agreements are not debentures and there is no difference in respect of the Notes as per the 1964 agreement with that of the Notes as per the 1967 agreement. 5. In claiming relief under S.80J of the Income Tax Act and giving computation of the capital employed, the assessee Company did not treat the two dollar loans aforementioned as liabilities under R.19A of the Income Tax Rules. It may be pointed out here that S.80J allows a deduction from the income, in respect of newly established industrial undertakings, an amount representing 6 per cent of the capital employed. As per R.19A of the Rules dealing with the computation of the capital, the aggregate of the amounts of borrowed moneys and debts due by the assessee are deducted in ascertaining the capital employed. It is also however provided that in the case of companies, the amount of its debentures need not be deducted as a debt to ascertain the capital. Treating the two dollar loans as debentures, the Company did not deduct the amount as per these. The Income Tax Officer however treated them as liabilities and deducted these loan amounts from the aggregate value of the assets in the ascertainment of capital. Thus the relief under S.80J was worked out on a smaller figure than what was claimed by the assessee. 6. The assessee Company appealed as according to them the two loans represented debentures. Their contention was however rejected and the appeals were dismissed by the Appellate Assistant Commissioner. However, on further appeal by the assessee Company to the Income Tax Appellate Tribunal, the Tribunal found both these loans are debentures and the assessee's contention accepted. This decision gave rise to the application for reference and the subsequent reference of the question by the Tribunal to this Court. 7. The short question that really arises for our consideration is what is a debenture. Are the loans in the real sense of the term debentures? Income Tax Act does not define a debenture. This decision gave rise to the application for reference and the subsequent reference of the question by the Tribunal to this Court. 7. The short question that really arises for our consideration is what is a debenture. Are the loans in the real sense of the term debentures? Income Tax Act does not define a debenture. The Companies Act, 1956 in S.2(12) gives an inclusive definition. It states that "debenture" includes debenture stock, bonds and any other securities of a company, whether constituting a charge on the assets of the company or not. The same is the meaning given in the English Companies Act of 1948 (S.455). Palmer would state that the term securities in the definition clause is apparently used in a sense slightly in excess of its strict legal meaning. 8. Lindley, J. observed in an early case British-India etc., Co. v. I.R.C. (1881 (7) QBD 165 at 172-173): "What the correct meaning of debenture is I do not know. I do not find anywhere any precise definition of it. We know that there are various kinds of instruments commonly called debentures. You may have mortgage debentures which are charges of some kind on property. You may have debentures which are bonds .......... you may have a debenture which is nothing more than an acknowledgment of indebtedness. And you may have a thing like this which is something more; it is a statement by two Directors that the company will pay a certain sum of money on a given day, and will also pay interest half-yearly at certain times, and at a certain place upon the production of certain coupons by the holder." Chitty, J. said in Levy v. Abercorris Co.(1888 (37) Ch. D. 260 at 264): "I cannot find any precise legal definition of the term. It is not either in law or commerce a strictly technical term or what is called a term of art." Palmer quotes the same Judge stating in another case Edmonds v. Blaina Co.(1887 (36) Ch. D. 219): "The term imports a debt - an acknowledgment of a debt - and speaking of the numerous and various forms of instruments which have been called debentures, without anyone being able to say that the term is incorrectly used, I find that generally - if not always - the instrument imports an obligation or covenant to pay. D. 219): "The term imports a debt - an acknowledgment of a debt - and speaking of the numerous and various forms of instruments which have been called debentures, without anyone being able to say that the term is incorrectly used, I find that generally - if not always - the instrument imports an obligation or covenant to pay. This obligation or covenant is, in most cases at the present day, accompanied by some charge or security." After quoting these decisions the learned author states (Palmer's Company Law - 20th Edition - Page 367-368) : - "In modern commercial usage a debenture denotes an instrument issued by the company, normally - but not necessarily - called on the face of it a debenture, and providing for the payment of, or acknowledging the indebtedness in, a specified sum - say 100 - at a fixed date, with interest thereof. It usually - but not necessarily - gives a charge by way of security, and is often - though not invariably - expressed to be one of a series of like debentures. But the term, as used in modern commercial parlance, is of extremely elastic character, for (1) it is sometimes used, both by lawyers and businessmen, to describe an instrument which is not called, on the face of it, a debenture, eg., a bond; (2) it is used of an instrument which is not one of a series. A single debenture may be issued to one man; (3) it is not the less a debenture because - (a) it is not under seal; or (b) it does not contain a charge; or (c) it does not provide for payment at any fixed date but only in the event of winding up, or in some contingency; or (d) because there is no personal liability on the company to pay but the company charges its property as security for the debt of another person. Although thus the modern meaning of the term "debenture" is wide, it would go too far to assert that every document creating or acknowledging an indebtedness of the company is a debenture. Commercial men and lawyers would certainly not use this term when referring to bills of exchange or other negotiable instruments, deeds of covenant and many other documents in which a company stipulates to pay a sum of money." 9. Commercial men and lawyers would certainly not use this term when referring to bills of exchange or other negotiable instruments, deeds of covenant and many other documents in which a company stipulates to pay a sum of money." 9. A debenture is certainly a document which either creates a debt or acknowledges it. While it may usually be one of a series, it need not necessarily be so. As Palmer has pointed out a single debenture may be issued to one party. As Chitty, J. in Edmond's Case (1887 (36) Ch. D. 219) and a Division Bench of the Bombay High Court in Laxman Bharmaji v. Emperor (AIR 1946 Bom. 18) point out: "In determining what is or is not a debenture within the section we are not bound to hold that an instrument is a debenture because it is called a debenture by the company issuing it, nor to hold it is not a debenture because it is not so called by the company. We must look at the substance of the instrument itself, and, without the assistance of any precise legal definition, form the best opinion we can whether the instrument is or is not a debenture." 10. Turning to this case we find that the secured notes concerned issued as per the agreements acknowledge indebtedness of the Company. They are issued under the common seal of the Company. The Controller of Capital Issues, Ministry of Finance, Government of India, had consented to the issuance of the notes. In respect of the notes issued in pursuance of 1964 agreement it is specifically provided that it is the intention that the expression 'Notes' shall have the same meaning as 'debentures' in Indian Law. However, as noted earlier the Notes issued as per both the agreements are worded identically except for some minor changes. And as we have pointed out earlier, the Revenue has no case that the notes issued as per 1964 agreement are in any way different from the notes issued as per 1967 agreement. The 'Notes' are transferable. They are in a series. The transferability of each note is assured from the agreement and from the wording of the 'Note'. 11. In the circumstances the Tribunal was right in treating the dollar loans as debentures for the purpose of granting relief under S.80J of the Income Tax Act, 1961. The 'Notes' are transferable. They are in a series. The transferability of each note is assured from the agreement and from the wording of the 'Note'. 11. In the circumstances the Tribunal was right in treating the dollar loans as debentures for the purpose of granting relief under S.80J of the Income Tax Act, 1961. Therefore, we answer question No. 1 in favour of the assessee and against the revenue. A copy of the Judgment under the seal of the High Court and the signature of the Registrar will be sent to the Income Tax Appellate Tribunal, Cochin Bench.