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TMI Blog1997 (11) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... s court in T.C.P. No. 583 of 1982, dated April 11, 1983, the Income-tax Appellate Tribunal has stated a case and referred the following questions of law: "1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the sum of Rs. 15 lakhs due by the assessee to the Tamil Nadu Industrial Investment Corporation Limited as on July 1, 1971, was includible in the capital base as provided in clause (v) of rule 1 of the Second Schedule to the Companies (Profits) Surtax Act, 1964? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the mortgage loans of Rs. 60 lakhs and Rs. 2,58,981 respectively from the Syndicate Bank and the Punjab National Bank were includible in the capital base in terms of clause (v) of rule 1 of the Second Schedule to the Companies (Profits) Surtax Act, 1964?" The tax case arises under the provisions of the Companies (Profits) Surtax Act, 1964, and it relates to the assessment year 1973-74. It involves interpretation of clause (v) of rule 1 of the Second Schedule to the Companies (Profits) Surtax Act, 1964 (hereinafter referred to as 'the Act"), which reads as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and hence, since the period of repayment was less than five years, it was not liable to be included in the capital computation of the company. The Commissioner of Income-tax (Appeals), on appeal preferred by the assessee, held that the two loans form part of a same transaction and since the period of repayment was for a period of more than seven years, the outstanding loan amount to the Corporation was liable to be included in the capital base of the company. Aggrieved by the order of the Commissioner (Appeals), the Revenue carried the matter in appeal before the Income-tax Appellate Tribunal. The Appellate Tribunal also held that the loan by the bank, repayment to the bank by 1969 and loan to the corporation have to be treated as part of a single transaction and if it is taken as a part of a single transaction the loan was outstanding for a period of more than seven years and the loan amount has to be taken into account in the capital computation of the company. Challenging the finding of the Appellate Tribunal the Revenue sought for and obtained a reference and the first question of law set out above has been referred. In so far as the facts relating to the second questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rding to us was Rs. 25,18,981 and the correct figure of Rs. 25,18,981 is substituted for the figure of Rs. 2,58,981 in the second question of law referred to us. Mr. C.V. Rajan, learned counsel for the Revenue, submitted that the Tribunal was not correct in holding that the loan by the bank as well as by the Corporation should be treated as a single transaction. According to learned counsel the corporation stood only as a guarantor for the repayment of the loan by the assessee to the bank and when the entire loan due to the Punjab National Bank was discharged by the payment of Rs. 45 lakhs by the assessee and Rs. 25 lakhs was taken over by the Corporation, the loan due by the assessee to the Corporation is a separate transaction and it is not correct to hold that both the transactions should be treated as a single transaction. Mr. P.P.S. Janarthana Raja, learned counsel for the assessee, on the other hand, submitted that the entire transaction has to be seen and the Tribunal has come to the correct conclusion that both the loans should be treated as part of a single transaction. We have carefully considered the rival submissions of learned counsel for the parties. The fact re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that a part of the loan was discharged by payment to the bank and the remaining part was discharged by payment to the Corporation. So far as the assessee is concerned, the loan is a single and indivisible one. Since the assessee had a period of more than seven years to repay the loan of Rs. 70 lakhs, we are of the view that the Tribunal has come to a correct conclusion in holding that the transaction has to be treated as a single transaction so far as the assessee is concerned and the time allowed to repay the loan is more than seven years. Since the loan is taken as a single transaction, we hold that the Tribunal was correct in holding that the outstanding amount due by the assessee to the Corporation as on January 1, 1971, was includible in the capital base as provided in clause (v) of rule I of the Second Schedule to the Act. Accordingly, we answer the first question of law referred to us in the affirmative and against the Department. So far as the second question is concerned, we will first take up the case of the Syndicate Bank and the reasoning given in the Syndicate Bank case will also equally apply to the loan due to the Punjab National Bank. The Syndicate Bank advanced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection provides that when the terms of a contract have been reduced to the form of a document, no evidence shall be given in proof of the terms of such contract except the document itself or secondary evidence of its contents in cases in which the secondary evidence is admissible under the provisions contained earlier. This provision of section 91 has no application to the facts of the case. It is not the case of the assessee that it has produced certain evidence before the Income-tax officials with reference to the terms of the loan that was obtained under the deed of mortgage and it is not the case of the department that the assessee has not produced the original document. Consequently, the provisions of section 91 of the Indian Evidence Act have no application to the facts of the case. In so far as the applicability of section 92 of the Indian Evidence Act is concerned, section 92 excludes the evidence of oral agreement. Proviso 4 to section 92 provides as under: "The existence of any distinct subsequent oral agreement to rescind or modify any such contract, grant or disposition of property, may be proved, except in cases in which such contract, grant or disposition of propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under: "The bank, by its letter dated April 3, 1963, had agreed to the postponement of the dates of repayment in instalments asked for by the company in its letter of March 19, 1963, provided that the entire loan was repaid before December 1, 1968; and the company, by its letter dated April 24, 1963, agreed to repay fully before December 1, 1968, in five instalments as stated in that letter. The minutes book of the board of directors of the company showed that the bank had agreed to this. Reading the letters of April 3, 1963, and April 24, 1963, together, it was clear that there was an agreement between the bank and the company to modify the terms of the agreement of December 1, 1961, as regards repayment of the loan of Rs. 50 lakhs. In law, there was no necessity to have a formal document setting out the terms of the modification and if the parties referred to the execution of any such formal document, it was only a matter of keeping the record." The above decision of the Gujarat High Court was confirmed by the Supreme Court in CIT v. New India Industries Ltd. [1995] 212 ITR 653, wherein the Supreme Court held that the subsequent correspondence between the parties would re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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