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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 ..... red from the profit of the last year for the purpose of capital computation? (b) Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the debentures of Rs. 15 lakhs issued to Indian Medical Research Society, a Society registered under the Society Registration Act and approved by Central Board of Direct Taxes for the purpose of Section 35(i)(ii) of the I. T. Act, 1961 were not includable in the capital computation?" 2. The Assessment Year involved is A. Y. 1974-75. 3. Re: Question (a): (i) The facts leading to this question are set out in paragraphs 2 and 3 of the statement of case and it reads as under: "(2) The assessee is a company and the proceedings relate to its surtax assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be distributed as proposed 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 Rs. 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 Rs. 25,000/only and not by Rs. 91,000/" (ii) We find that the issue raised herein above stands concluded against Applicant-Assessee and in favour of the Resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be included in the capital base of the company as they were redeemable before the expiry of a period of seven years from the date of issue thereof. Accordingly, the Income tax Officer did not include the aforesaid sum of Rs. 15 lakhs in the computation of the assessee's capital. The Commissioner of Income Tax (Appeals) agreed with the Income tax Officer. (5) By placing reliance on a Calcutta High Court's decision in the case of Briathwaite & Co., v/s. CIT (111 ITR 825), it was submitted before the Tribunal that the stipulation as regards the option of the company to redeem the debentures by giving three calender months previous notice was only a contingency and unless that contingency as a matter of fact, arose, the debentures s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 order of the Tribunal upheld the view of the Assessing Officer. Consequently, the amount of Rs. 15 lakhs raised by way of debentures were not to be included in computing the Capital of the company for the purposes of computing the surtax payable. (iv) In terms of the Second Schedule to the Act, the debentures, if any, issued to the public would be included in computing the capital of the company for the purpose of determining the surtax payable. The surtax under the Act is payable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the debentures. Thus, on the plain reading of the proviso, it is very clear that the Applicant-Assessee would not be covered by it and the amount of Rs. 15 lakhs raised by issue of debentures would form part of the capital of the company for the purpose of computation of surtax. (v) Mr. Thakkar, the learned Counsel appearing for the AppellantAssessee invited our attention to the proviso to subrule (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edemption of the debentures before the end of the seven years from the date of the issue but the power to redeem the debentures before end of the seven years would itself make the debentures redeemable before the end of the seven years and therefore, includeable in the capital of the Applicant-Assessee. (vii) In view of the above, it must be held that the 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. (viii) In the above view, question (b) as framed for our op ..... X X X X Extracts X X X X X X X X Extracts X X X X
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