TMI Blog1982 (2) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... dule to the Companies (Profits) Surtax Act, 1964 ? " The assessee is a company. It carries on business in the manufacture and sale of pharmaceutical goods. It closes its accounts on 31st March. Its surtax assessment for the assessment year 1965-66 covered the previous year ended 31st March, 1965. On 24th August, 1962, the assessee-company issued in favour of the Bank of Baroda without any payment having been made by it, 6 1/2% first mortgage debentures of the value of Rs. 20 lakhs and offered the same as collateral security against cash credit arrangements with the State Bank for financing its capital project of penicillin division. The dispute before the Tribunal was whether such debentures could be included in the computation of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e mortgage debentures of Rs. 20 lakhs in its computation of capital. However, in a revised return this sum was included as a permissible deduction under cl. (iv) of r. 1 of Sch. II to the C.(P.)S.T Act, 1964. In the course of hearing before the ITO. who made the surtax assessment for this year the assessee abandoned its claim under cl. (v) of Tula I of Sch. II and pressed an alternative claim under cl. (iv) of rule I of the same Schedule. The ITO held that the loan taken from the Bank of Baroda did not satisfy the conditions laid down in either cl. (iv) or (v) of r. 1 of Sch. II and he rejected the assessee's claim. An appeal was preferred before the AAC pressing each of the alternative claims under cl. (iv) and cl, (v) of r. 1 of Sch. II, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. On the other hand, on behalf of the revenue, it was submitted that the assessee having abandoned its claim under cl. (iv) of r. 1 of Sch. II at the assessment stage it should not be allowed to agitate this claim in appeal before the Tribunal. It was further urged that the loan was not one which was originally granted for a period of 7 years, though it might have actually been allowed for such a period and hence the claim would have to be rejected in terms of the proviso to cl. (v). The Tribunal held, inter alia, as follows: "We find that the assessee's case is fully covered by cl. (iv) of rule of the Second Schedule. In our view, all types of debentures, irrespective of whether or not they were issued against such contributions, will b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. There was no extra amount of money available to the company and, as such, such amount raised by the issue of bonus shares could not be included in the computation of capital. The Bombay High Court emphasised that what happened in such a case was that a part of the sum standing to the credit of one of the sub-items to be included in the computation of capital was during the previous year transferred to another item to be included in the computation of capital under rule 1. Therefore, when bonus shares were issued as fully paid-up shares by the capitalisation of a part of the amount standing to the credit of the general reserves, the capital as computed in the manner provided by r. 1 of Sch. II was not increased in any manner whatsoever ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest is payable on such debentures; the interest on the bank loan or overdraft is paid in the usual way, and the bank will only resort to the debentures if it becomes necessary to protect their security, e.g., in a liquidation or when a receiver is appointed. The word 'secured' should appear after any liability appearing on the balance-sheet so secured." Similarly, reference was made to the observations appearing in Accountancy by William Pickles, 4th edn., p. 2394, where debenture was defined as a document acknowledging a loan to a company and is generally executed under the seal of the company usually but not necessarily containing provisions as to payment of interest. None of these observations, in our opinion, in any way militate ..... X X X X Extracts X X X X X X X X Extracts X X X X
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