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TMI Blog2016 (9) TMI 450X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in the capital of the company in terms of subrule (iv) to Rule 1 of the Second Schedule to the said Act.In the above view, question (b) as framed for our opinion is answered in the affirmative i.e. in favour of the Respondent-Revenue and against the Applicant-Assessee. - Income Tax Reference No. 111 of 1998 - - - Dated:- 10-8-2016 - M. S. Sanklecha And A. K. Menon, JJ. Mr. Nishant Thakkar with Ms. Jasmin Amalsadwala i/b. Mulla Mulla, for the Applicant ORDER P. C. This Reference under Section 18 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 am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed dividend. According to the Tribunal, the Bombay High Court's decisions in the cases of Bharat Bijli Ltd., and Marrior (I) Ltd., reported in 107 ITR 30 and 107 ITR 35, laid down that the general reserve is to be reduced not by the entire amount proposed to be distributed as dividend but only to the extent the profits were transferred to the general reserve in that year. 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 Applicant-Assessee sought to distinguish the same by pointing out that in the case of Bharat Bijlee Ltd., (supra), the amount was set aside on the last date of the previous year of the earlier Assessment Year. In this case also, the amount of ₹ 25,000/was transferred to the general reserve from the profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 date of its issue. However, the very next clause in the terms and conditions of the debentures provided that notwithstanding the above, the Company shall be at liberty to redeem the debentures at any time by giving 3 (three) calender months notice. These debentures were allotted to and held by Indian Medical Research Society. TheAssessing Officer had for the purpose of computing the capital of a company for the purpose of surtax in terms of Second schedule of the Act held it to be redeemable within 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 ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rule (v) of Rule 1 of the Second Schedule to the Act. This proviso, according to him, is identical to the proviso under consideration and it has been a subject of the Madras High Court's decision in CIT v/s. Sakthi Sugars Ltd., 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 seven years. However, the proviso with which we are concerned absolutely prohibited redemption of debentures before the expiry of the seven years. No sooner, the terms and conditions of the issue of debenture gives a right/option to the Applicant-Assessee to redeem the debentures before the expiry of seven years, it must follow that these debentures are redeemable before the expiry of seven years. (vi) Mr. Thakkar, next submits that in view of Rule 3 of the Seco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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