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TMI Blog1984 (11) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case, the Tribunal was justified in holding that the amount of Rs. 2,69,048 should be treated as a reserve for the purpose of computation of capital base ? 2. Whether, on the facts and in the circumstances of the case, the amount of Rs. 87,50,000 representing the U.S. Aid Loan has to be included for the purpose of computation of capital base ? 3. Whether, on the facts and in the circumstances of the case, the word 'person' includes the Government of the United States ? " It is necessary to notice a few facts in order to appreciate the contentions involved. The assessee is a public company. The previous year relevant for the surtax assessment year commenced on January 1, 1970, and ended on December 31, 1970. It would appear t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ewhat involved; but it would appear that the Income-tax Officer was of the view that the sum of Rs. 2,69,048 represented a reserve brought into existence by revealing the book asset and is, therefore, hit by Explanation 1 to rule 2 of the Second Schedule. On appeal, the Appellate Assistant Commissioner as well as the Tribunal declined to accept the Income-tax Officer's view and allowed the assessee's claim that the sum in question should be treated as a reserve and included in the computation of the capital of the assessee-company for the purpose of surtax under rule I of the Second Schedule above referred to. On an application by the Commissioner of Income-tax, the Tribunal referred the first question of law for the opinion of this court. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e do not think that the learned counsel for the assessee-company is right in his submission that Explanation 1 goes along with rule 2 of the Second Schedule and if rule 2 has no application, Explanation 1 has also no application. Explanations 1, 2 and 3 under rule 2 clearly indicate that they apply not with reference to rule 2, but with reference to the entire Second Schedule. Rule 2 of the Second Schedule is for the limited purpose of reducing the capital by the cost of assets producing income not taxable under of the Income-tax Act. That rule has no relevance for any of the Explanations mentioned under the rule. Explanation I above referred to has direct reference to rule 1, because it refers to " paid up share capital " referred to in su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... how paid-up share capital can be brought into existence or increased by revaluation of a fictitious or notional asset. The plain effect of Explanation 1 is that, if any asset appearing in the books of account of an assessee is revalued in order to create or increase paid-up share capital or reserve, then Explanation 1 will be applicable. We, therefore, reject the contention of the learned counsel for the assessee on this point. At the same time, we are also unable to accept the contention of the learned standing counsel for the Revenue that Explanation 1 has application to the facts and circumstances of the case. The object of Explanation is to prevent companies from bringing into existence or increasing paid-up share capital or reserve b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplanation 1. The sum of Rs. 2,69,048, in our opinion, represents an increase in the value of the asset, which is realised. In this view of the matter, we consider that Explanation 1 has no application to the facts and circumstances of this case. We accordingly answer the first question referred in the affirmative, that is to say, in favour of the assessee and against the Revenue. Questions Nos. 2 and 3 relate to the same aspect. It would appear that the assessee-company borrowed a sum of Rs. 87,50,000 from the U.S. Agency for International Development (USAID). USAID, it appears, is a part of the Department of the Government of the U.S.A. The assessee claimed that the sum borrowed is liable to be included for computing the capital of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on " is defined under section 2(31) of the Income-tax Act, 1961, and that definition is made applicable to the Surtax Act by section 2(9). It is further seen that the definition of the expression " person " is an inclusive definition in section 2(31) of the Income-tax Act. The definition of the expression " person " in section 2(42) of the General Clauses Act is also an inclusive definition. It cannot, therefore, be said that the definition, as contained either in the Income-tax Act, which is applicable to the Surtax Act or the General Clauses Act, is exhaustive. The expression " person " is of a wide connotation and there is no reason why it should be interpreted as not including a foreign government. Learned standing counsel for the-Reven ..... X X X X Extracts X X X X X X X X Extracts X X X X
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