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M/s. Somaiya Orango Chemicals Co. Ltd. Versus The Commissioner of Income Tax-2

2016 (9) TMI 450 - BOMBAY HIGH COURT

Capital computation - Companies (Profits) Surtax Act, 1964 - Tribunal held that the amount be reduced from the General Reserve being the amount transferred from the profit of the last year for the purpose of capital computation? - Held that:- We find that the issue raised herein above stands concluded against Applicant-Assessee and in favour of the Respondent-Revenue by a virtue of the decision of this Court in CIT v/s. Bharat Bijlee Ltd.[1976 (7) TMI 38 - BOMBAY High Court ]. Mr. Thakkar, learn .....

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on as posed for our opinion is to be answered in the affirmative i.e. in favour of the Respondent-Revenue and against the Applicant-Assessee. - Debentures issued to Indian Medical Research Society - whether were not includable in the capital computation? - Held that:- Debentures were redeemable at the option of the Applicant-Assessee at any time by giving three calender months prior notice, even before the expiry of seven years from the date of issue. Thus, they are required to be included i .....

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of the Companies (Profits) Surtax Act, 1964 (the Act) by the Tribunal, seeks our opinion on the following substantial questions of law: (a) Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the amount of ₹ 25,000/be reduced from the General Reserve being the amount transferred from the profit of the last year for the purpose of capital computation? (b) Whether on the facts and in the circumstances of the case, the Tribunal was justified .....

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The assessee is a company and the proceedings relate to its surtax assessment for assessment year 1974-75. The relevant previous year is from 1st June, 1972 to 31st May, 1973 and the date relevant for the purpose of computation of capital is 1-6-1972. It is common ground that the Directors of the assessee company had recommended at the end of the year i.e. on 31st May, 1972 that a sum of ₹ 91,000/being arrears of dividend on preference shares for the accounting year ending 3151970 be paid .....

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t of the general reserve was a liability and therefore, the general reserve required to be reduced by the amount of ₹ 91,000/. The Commissioner of Income tax (Appeals) also, it may be stated, has following a series of decisions (names not mentioned) said to have been reported in 107 ITR confirmed the order of the Income-tax Officer in this behalf. (3) On the other hand, the Tribunal has accepted the assessee's submissions that their Lordships of the Bombay High Court have not held that .....

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Finding then that only a sum of ₹ 25,000/was transferred to general reserve from the profits in the said year, the Tribunal held that the general reserve should have been reduced by ₹ 25,000/only and not by ₹ 91,000/ (ii) We find that the issue raised herein above stands concluded against Applicant-Assessee and in favour of the Respondent-Revenue by a virtue of the decision of this Court in CIT v/s. Bharat Bijlee Ltd., 107 ITR 30. Mr. Thakkar, learned Counsel appearing for the .....

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r opinion is to be answered in the affirmative i.e. in favour of the Respondent-Revenue and against the Applicant-Assessee. 4. Re: Question (b): (i) The facts leading to this question are set out in paragraphs 4 and 5 of the statement of case which reads as under: (4) The assesee company had issued debentures of ₹ 15 lakhs during the previous year which were allotted and held entirely by the Indian Medical Research Society. The terms and conditions under which the debentures were issued in .....

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e thereof. Accordingly, the Income tax Officer did not include the aforesaid sum of ₹ 15 lakhs in the computation of the assessee's capital. The Commissioner of Income Tax (Appeals) agreed with the Income tax Officer. (5) By placing reliance on a Calcutta High Court's decision in the case of Briathwaite & Co., v/s. CIT (111 ITR 825), it was submitted before the Tribunal that the stipulation as regards the option of the company to redeem the debentures by giving three calender m .....

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xures 'A', 'B' and 'C' respectively forming part of the statement of the case. Annexure 'D' is the copy of the terms and conditions for the issue of debentures, forming part of the statement of the case. (ii) The Applicant-Assessee had issued debentures of ₹ 15 lakhs during the previous years relevant to the subject Assessment Year. The terms and conditions of the Debentures provided that the debentures are redeemable after the expiry of 20 years from the da .....

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n a period of seven years, thus reduced it from the capital of the company. This was on the basis of proviso to Rule 1(iv) of the Second Schedule to the Act, which reads as under: Provided that according to the terms and conditions of issue of such debentures, they are not redeemable before the expiry of a period of seven years from the date of issue thereof. (iii) The order of the Tribunal upheld the view of the Assessing Officer. Consequently, the amount of ₹ 15 lakhs raised by way of de .....

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ease the capital employed for the purpose of surtax and equal efforts on the part of the Revenue to reduce the capital. We find that the proviso for consideration which excludes debentures from being considered as a component of the capital employed for computing surtax payable is clear. It provides that according to the terms and conditions of the issue of the debentures, the same should not be redeemable before the expiry of period of seven years from the date of its issue. In this case, terms .....

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oviso would hit the Applicant-Assessee as the terms of issue of the debenture empowers the Applicant-Assessee to redeem the debentures at any time after giving three calender months notice even before the expiry of seven years. This power of redemption of debenture at any time by giving three calender months notice is exercisable i.e. on following day after issue of the debentures. Thus, on the plain reading of the proviso, it is very clear that the Applicant-Assessee would not be covered by it .....

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262 ITR 696. We find that the proviso to subrule (v) of Rule 1 of the Second Schedule to the Act is differently worded and excludes money borrowed 'for repayment thereof during a period of not less than seven years'. It was while construing the aforesaid proviso that Madras High Court in Sakthi Sugar Ltd., (supra) held that where the agreement provides that period of repayment of the entire loan is more than seven years so long as repayment of part loan takes place beyond the period of .....

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