EASTERN INVESTMENTS LTD. vs COMMISSIONER OF INCOME-TAX,WEST BENGAL.

The Supreme Court held that interest on debentures issued by a company to reduce its share capital is allowable as business expenditure under Section 12(2) of the Indian Income-tax Act, 1922. The Court established that the test for allowance is whether the transaction was entered into as part of the company's ordinary business operations aimed at earning income. The High Court's conclusion that the interest was not allowable was overturned, affirming that the transaction was made for commercial expediency and to facilitate business operations.