TMI Blog1985 (10) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... case, the Tribunal was right in holding that the 'debenture redemption reserve' and ' gratuity reserves' were 'other reserves' under rule 1 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, and the same are to be taken into account in computing the capital of the assessee company for the assessment years 1968-69 and 1969-70 ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the increase in the assessee's liability to the tune of Rs. 11,71,504,90 on account of devaluation of the Indian rupee on June 6, 1966, should have been allowed while computing the capital for the purpose of determining 'statutory deduction' under the Companies (Profits) Surtax Act, 1964, for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lised 8,05,480,03 dollars from the International Bank of Reconstruction and Development, Washington, through the ICICI. This was a dollar loan. After the payment of instalments up to January 1, 1966, an amount of dollars 5,70,102,02 equivalent to Rs. 27,18,994,89 remained to be repaid by the assessee. In May, 1966, the assessee repaid a loan instalment of dollars 51,187. The balance due from the assessee before the devaluation of the Indian rupee on June 6, 1966, was dollars 5,18,915,03. According to the loan agreement between the assessee and the ICICI, the said loan was repayable in dollars. By virtue of the devaluation of the Indian rupee on June 6, 1966, the liability of the assessee in respect of the said dollar payment in terms of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntage of the capital of the company computed in accordance with the provisions of the Second Schedule to the Surtax Act or an amount of Rs, 2,00,000, whichever is greater. The Second Schedule to the Surtax Act contains the Rules for computing the capital of a company for the purpose of surtax. We are concerned with clause (v) of rule 1. The opening portion of the said rule read with the said clause runs as follows : " (1) Subject to the other provisions contained in this Schedule, the capital of a company shall be the aggregate of the amounts, as on the first day of the previous year relevant to the assessment year, of... (v) any moneys borrowed by it from Government or the Industrial Finance Corporation of India or the Industrial Credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... borrowing. It was next submitted by him that as a result of this additional liability of Rs. 11,71,504.90, no capital asset has been created by the assessee company and, hence, the conditions contained in the proviso set out earlier were not satisfied and the amount of increased liability cannot be included in the computation of capital of the assessee. In our view, it is not possible to accept either of these submissions. In the first place, it is the accepted position that the aforesaid dollar loan was borrowed by the assessee for the creation of a new capital asset. It must also be taken as the agreed position that the agreement in respect of the said dollar loan was one which complied with the terms of rule 1(v) and the proviso in the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... created after the increase in liability. We fail to see how much a thing would be required in a case like this where the liability goes up on account of devaluation. However, there is nothing in the statement of the case to show that the capital asset, namely, the addition to the caustic soda plant, was completely constructed before June 6, 1966. This is natural because this argument has been advanced for the first time before us on behalf of the Revenue and there was not even a faint trace of such an argument before the Tribunal. Mr. Jetly placed reliance on the decision of a Division Bench of the Madras High Court in Kannapiran Mills Ltd. v. CIT [1977] 106 ITR 947. In our opinion, the reliance placed by Mr. Jetly on this decision is ent ..... X X X X Extracts X X X X X X X X Extracts X X X X
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