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Issues:
1. Interpretation of Rule 19A(3) regarding the treatment of a sum of Rs. 6,00,000 as borrowed moneys or debt due by the assessee-company for the purpose of relief under section 80J of the Income Tax Act, 1961. The High Court of Karnataka addressed the issue of whether a sum of Rs. 6,00,000 should be considered as borrowed moneys or debt due by the assessee-company within the meaning of Rule 19A(3) for the assessment year 1971-72. The Commissioner of Income-tax contended that the amount constituted a liability and should have been deducted while computing the capital under Rule 19A to allow relief under section 80J. The Commissioner argued that the sum was received towards allotment of shares to non-resident shareholders and should be treated as a debt. However, the assessee maintained that the amount was not borrowed or a debt, but rather paid for a specific purpose and could be returned only if the shares were not allotted. The High Court analyzed Rule 19A, emphasizing that the amount paid for the allotment of shares could not be considered a loan or borrowing by the assessee. The Court concluded that since the return of the amount was contingent upon the approval of the Reserve Bank for share allotment, it did not constitute a debt owed by the assessee on the first day of the computation period. Therefore, the Court upheld the Tribunal's decision, ruling in favor of the assessee and answering the question in the affirmative. In summary, the High Court's judgment centered on the interpretation of Rule 19A(3) in determining whether a specific sum should be treated as borrowed moneys or debt due by the assessee-company for the purpose of relief under section 80J of the Income Tax Act. The Court concluded that the amount in question, paid for share allotment, did not qualify as a debt owed by the assessee on the initial computation day due to its contingent nature based on Reserve Bank approval, thereby supporting the Tribunal's decision and ruling in favor of the assessee.
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