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TMI Blog1976 (8) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... ldings from 1949. It augmented its resources consisting of share capital by accepting loans often called fixed deposits from various parties. The assessee utilised these monies obtained on such loans for the purpose of acquiring fixed assets for the company. By an agreement dated April 23, 1951, entered into between the assessee and the Madras Industrial Investment Corporation Ltd., the assessee borrowed a sum of Rs. 5,00,000 for the specific purpose of discharging the then liabilities of the assessee, namely, a sum of Rs. 5,00,000. Again, under another agreement dated March. 24, 1959, entered into between the assessee and the Madras Industrial Investment Corporation Ltd., the assessee borrowed a further sum of Rs. 11,50,000 of which a sum of Rs. 4,20,000 was earmarked for payment towards machinery supplied and the balance of Rs. 7,30,000 was earmarked for payment towards deposits taken from the public. We are concerned with the assessment year 1964-65. As on January 1, 1963, which was the relevant date for the assessment year, there was an outstanding to the extent of Rs. 8,83,607 out of which Rs. 78,607 was the balance outstanding under the first loan and the balance was outstand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... definition of the term " chargeable profits " in section 2(5) refers back to the First Schedule of the Act while the definition of the term " statutory deduction " in section 2(8) refers back to the Second Schedule. It is not necessary to make a detailed reference to the provisions contained in the First Schedule for the simple reason that no controversy arises in this case with reference thereto. But the controversy centres on certain provisions contained in the Second Schedule which is relevant for computing the capital so as to arrive at the statutory deduction. Paragraph (1) of the Second Schedule opens by stating : " Subject to the other provisions contained in this Schedule, the capital of a company shall be the aggregate of the amounts, as on the first day of the previous year relevant to the assessment year, of ... " Several amounts are mentioned thereunder, and we are concerned with item (v) thereof, which is as follows : " any moneys borrowed by it from Government or the Industrial Finance Corporation of India or the Industrial Credit and Investment Corporation of India or any other financial institution which the Central Government may notify in this behalf in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the Act, but has been defined in the Income-tax Act, 1961. Consequently, by virtue of section 2(9) of the Act, the definition of the expression " capital asset " contained in section 2(14) of the Income-tax Act, 1961, will be applicable to the expression "capital asset " occurring in the proviso to item (v) of para. 1 of the Second Schedule to the Act. Section 2(14) of the Income-tax Act defines the expression " capital asset as follows : " 'capital asset' means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include--- (i) any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession ; (ii) personal effects, that is to say, movable property (including wearing apparel and furniture, but excluding jewellery) held for personal use by the assessee or any member of his family dependent on him. " There is an Explanation to this definition and it is not necessary to refer to the same for the purpose of this case. Therefore, we proceed on the basis that the expression " capital asset " occurring in the proviso to item (v) of para. 1 of the Second Schedule means prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we are of the opinion that in view of the clear and unambiguous language of the proviso, the only conclusion possible is that the capital asset in India should be created as a result of the borrowing. In other words, the borrowing should be for the creation of such capital asset in India. Therefore, the fact that the capital asset had already come into existence as a result of some borrowing and the present borrowing was utilised to discharge those loans will not in any way help the case of the assessee. The second limb of the argument has also to share the same fate. The very idea of the creation of a capital asset in India referred to in the proviso will clearly show that it will not take into account any intangible additions to the assets of a company as shown in the balance-sheet. As a matter of fact, the definition of the term " capital asset " occurring in section 2(14) of the Income-tax Act, 1961, refers to " property of any kind held by an assessee ". Therefore, such a notional or intangible addition to assets as a result of the liquidation of the existing liabilities will not come within the scope of the expression capital asset " as defined in section 2(14) of the Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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