COMMISSIONER OF INCOME TAX VS NEW INDIA INDUSTRIES LTD.
1996 P T D 572
[212 I T R 653]
[Supreme Court of India]
Present: J. S. Verma, S. P Bharucha and K. S. Paripoornan, JJ
COMMISSIONER OF INCOME TAX
versus
NEW INDIA INDUSTRIES LTD.
Civil Appeals Nos. 1513 to 1516 of 1977, decided on 24/01/1995.
(Appeal by special leave from the judgment and order, dated January 23, 1975, of the Gujarat High Court in Income Tax Reference No. 121 of 1974).
Income-tax---
----Surtax---Computation of capital---Loan taken to be included if repayable "during a period of not less than seven years "---Agreement originally providing for repayment of loan within seven years---Subsequent modification by mutual agreement for repayment within eight years---Loan repaid within eight years-- To be included in capital computation---Companies (Profits) Surtax Act, 1964, Sched. II, R.1(v).
The decision of the Gujarat High Court in New India Industries Ltd. v: C.I.T. (1977) 108 ITR 181 at pages 205-206, was, inter alia, to the effect that the Legislature .had in the proviso to clause (v) of rule 1 of Schedule II to the Companies (Profits) Surtax Act, 1964 provided an outer limit to the repayment of the loan (to be included in the computation of capital) by using the words "not less than seven years" and that "therefore, if the spread over of the repayment has been provided in the terms of the agreement in such a manner that the repayment is completed by a date beyond seven years from the first advance made udder the agreement under which the moneys are borrowed, the loan in question will qualify for inclusion in the capital of the company computed for the purposes of surtax. However, once it is found that the date for the repayment of the entire amount falls beyond the period of seven years counting from the date of the first-advance under the agreement, the loan would qualify for inclusion in the capital. In the instant case, the first advance of Rs.10 lakhs under the agreement was paid in the month of July, 1961. The second amount was paid some time in the month of September, 1961. That too was of Rs.10 lakhs. These two items aggregating to Rs.20 lakhs were subsequently adjusted by mutual agreement between the parties against the loan of Rs.50 lakhs and, therefore, they must be deemed to have been made by agreement between the parties under the loan agreement of December 1, 1961. The terms of the agreement as modified provided for repayment by December 1, 1968, and thus the repayment of this loan was during a period of not less than seven years, that is, so spread over a period of not less than seven years counting from the date of the first advance under this agreement of December 1, 1961. In view of this conclusion, so far as the facts of the present case are concerned, the loan of Rs. 50 lakhs was to be repaid not within a period of seven years but during a period of not less than seven years". And accordingly, the High Court had held that the entire loan of Rs.50 lakhs qualified for inclusion in the computation of the capital of the respondent-company for the purpose of surtax chargeable under the Companies (Profits) Surtax Act, 1964. The Department preferred appeals to the Supreme Court:
Held, dismissing the appeals, that the finding reached by the High Court on the basis of the subsequent correspondence between the parties which resulted in the modification of the agreement did not suffer from any infirmity and that the decision of the High Court was correct.
New India Industries Ltd. v. C.I.T. (1977) 108 ITR 181 affirmed.
G. Viswanatha Iyer, Senior Advocate (K.P. Bhatnagar and S.N. Terdol with him) for Appellant.
Joseph Vellapally, Senior Advocate (Punit Tyagi, Advocate (of J.B. Dadachanji & Co. with him) for Respondent.
ORDER
The question for decision in these appeals relates to the construction of the proviso to rule 1(v) of the Second Schedule to the Companies (Profits) Surtax Act, 1964. It may be mentioned that the provision contained in the proviso to rule 1(v) therein has been omitted from April 1, 1977. This question therefore is not of any practical significance at this stage.
The High Court [(see (1977) 108 ITR 181)] has taken the view that there was a modification of the agreement by the subsequent correspondence between the parties, as a result of which the loan fell out of the purview of the aforesaid proviso to rule 1(v). The finding of the High Court is as under:
"Therefore, if the spread over of the repayment has been provided in the terms of the agreement in such a manner that the repayment is completed by a date beyond seven years from the first advance made under the agreement under which the moneys are borrowed, the loan in question will qualify for inclusion in the capital of the company computed for the purposes of surtax. However, once we find that the moneys were advanced as of a particular date and under the terms of agreement under which those moneys were advanced, the final date for the repayment of the entire amount falls beyond the period of seven years counting from the date of the first advance under the agreement, the loan would qualify for inclusion in the capital. In the instant case, the first' advance of Rs.10 lakhs under the agreement was paid in the month of July, 1961. The second amount was paid some time in. the month of September, 1961. That too was of Rs.10 lakhs. These two items aggregating to Rs.20 lakhs were subsequently adjusted by mutual agreement between the parties against this loan of Rs.50 lakhs and, therefore, they must be deemed to have been made by agreement between the parties under this loan agreement of December 1,1961. The terms of the agreement as modified provided for repayment by December 1, 1968, and thus the repayment of this loan was during a period of not less than seven years, that is, so spread over a period of not less than seven years counting from the date of the first advance under this agreement of December 1, 1961. In view of this conclusion, so far as the facts of the present case are concerned, the loan of Rs.50 lakhs was to be repaid not within a period of seven years."
In our opinion, the finding reached by the High Court on the basis of the subsequent correspondence between the parties which resulted in the modification of the agreement does not suffer from any infirmity in the present case to require us to take a different view. It is, therefore, clear that the High Court's answer to the questions of law referred to it for decision do not suffer from any infirmity. Consequently, the appeals are dismissed.
No costs.
M.B.A./1060/F Order accordingly.