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TMI Blog2009 (4) TMI 479X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Star Synthetics Pvt. Ltd - Held that: - debenture is only a loan account. Hence, both the CIT and the learned Assessing Officer fell in error when they consolidated only two accounts of the assessee with M/s. Star Synthetics Pvt. Ltd. ignoring its debenture account therein. - if all those three accounts are taken together, assessee at no point of time vowed any money to the company and therefore, assessee cannot be considered to have loan or taken any advance from the said company. Therefore, there is no question of any deemed dividend arising in its hand. Accumulated profit - share premium - Held that: under section 78 of the Companies Act, 1956 share premium account cannot be taken as part of accumulated profits for the purpose of app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the debenture account that the said company which amount was due from the said company and if this was also considered along with the two accounts with the said company, there would not be any loan balance warranting the application of section 2(22)( e ) of the Act. The second contention was that the accumulated profit of M/s. Star Synthetics Pvt. Ltd. considered by the Assessing Officer at Rs.64,28,793 was including share premium amount of Rs. 40 lakhs which noted to be excluded. According to the assessee, it was against the debenture account with the said company that it had given various loans to it. Further it was assailed by the assessee that the account is of proprietorship concern M/s. S.A. Fabrics in M/s. Star Synthetics Pvt. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arch, 2001 of the Board of Directors of M/s. Star Synthetics Pvt. Ltd. had subscribed to non-convertible unsecured debentures bearing 4% interest for Rs. 50 lakhs. He pointed out from a copy of the said resolutions placed at paper book page Nos. 25 and 26 that debenture holders were allowed to maintain a current account against the said debentures and only condition was that debenture holders could not draw a sum in excess of the deposit on account of debentures. Therefore, according to him, when assessee's personal account with the said company placed at paper book page Nos. 10 and 11 to 143 be considered, it was necessary to recall the debenture account also, copy of which is placed at paper book page No. 9. The learned counsel for the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed the orders and heard the rival contentions. There is no dispute that assessee had an account with M/s. Star Synthetics Pvt. Ltd. in its personal name and another account in the name of M/s. S.A. Fabrics of which he was the proprietor. There is also no dispute that assessee was having more than 10% of the share holding in M/s. Star Synthetics Pvt. Ltd. and therefore for any loans and advances taken by the assessee from the said company, provisions of section 2(22)( e ) of the Act was necessarily apply, if the other conditions set out therein were satisfied. Assessee's contention is that when the account in his personal name and that of the name of M/s. S.A. Fabrics were considered by the Assessing Officer which should have been done afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mortgage. Section 137 of the Transfer of Property Act regards debentures as the subject matter of a transfer and not as constituting a transfer by itself A debenture means a document which either creates a debt or acknowledges it, and any document which fulfils either of these conditions is a debenture. Although the instruments called debentures may be described with comparative case, a judicial definition of a debenture or at any rate an accurate one has not been obtained and is perhaps not urgently required. In the Accountancy Text Book by William Pickles, "debenture" is 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 provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany whereby it undertakes to repay the amount covered by it and till then it undertakes further to pay interest thereon to the debenture holder. Except where debentures are secured by mortgage of immovable property or hypothecation or pledge of movable property, they constitute actionable claims. It was further held that a debenture is thus like a certificate of loan or a loan bond evidencing the fact that the company is liable to pay a specified amount with interest and although the money raised by the debentures becomes a part of the company's capital structure, it does not become share capital." 7. Thus, the above exposition would clearly show that debenture is only a loan account. Hence, both the CIT and the learned Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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