(Appeals by special leave from the judgment and order, dated April 20, 1983 of the Madras High Court in T.C. Nos. 1662 and 1666 of 1997).

Income‑tax‑‑‑

‑‑‑‑New industrial undertaking‑‑‑Relief‑‑‑Computation of capital ‑‑‑Assessee purchasing plant and machinery from foreign company ‑‑‑Consideration‑‑ Allotment of equity shares at par‑‑‑Delay in allotment of shares ‑‑‑Assessee not debtor to supplier‑‑‑Amount outstanding on account of purchase consideration‑‑‑To be included in computation of capital‑‑‑Indian Income Tax Act, 1961, S.80J.

The assessee purchased plant and machinery from a foreign company and, under the agreement between the assessee and the foreign company, the purchase price of the plant and machinery was to be satisfied by, allotment of equity shares in the assessee‑company at par of an equivalent value. The question was whether the agreement had created any debt towards the supply of the plant and machinery, and, consequently, the amount outstanding towards the purchase consideration had to be excluded from the computation of capital for the relief under section 80J of the Income Tax Act, 1961. On a reference, the High Court held that the amount outstanding to the foreign company on account of the balance consideration towards plant and machinery ought to be included in the computation of capital for the grant of relief under section 80J [see (1985) 153 ITR 239]. On appeal to the Supreme Court:

Held, arming the decision of the High Court, that the liability of the assessee to the foreign company was to issue equity shares of a value equal to the amount advanced by the foreign company for the plant and machinery. It was only if, for any reason, the shares could not be allotted that the question of compensating the foreign company might arise. In these circumstances, it could not be said that there was debt owed by the assessee to the foreign company for the purpose of computing the capital under section 80J.

CIT v. Lucas TVS Ltd. (1985) 153 I TR 239 affirmed on this point.

Kesoram Industries and Cotton Mills Lt (l. v. CWT (1966) 59 ITR 767 (SC) ref.

Dr. V. Gauri Shankar, Senior Advocate (Anil Srivastava, S. Rajappa and B.K. Prasad, Advocates with him) fop Appellant.

Mrs. Janaki Ramachandran, Advocate for Respondent.

ORDER

The order of the Tribunal states that clause 4(ii) of the agreement, dated November 27, 1962, between Lucas, the English Company, and the respondent would show that the purchase price o f the plant and machinery, which had been advanced to the respondent by Lucas (England), would be satisfied with the issue by the respondent to Lucas (England) of its equity shares at par of an equivalent value. The question that arose, therefore, was whether the said agreement had created any debt towards the supply of plant and machinery by Lucas (England). The Tribute took the view that the obligation of the respondent in respect of the price of the plant and machinery had to be satisfied by the issue of the respondent's shares to Lucas (England). The view of the Tribunal was upheld by the High Court and the Revenue is in appeal.

It was contended by learned counsel for the Revenue that on the relevant date, for the purpose of section 801 of the Income‑tax Act, the shares had not been allotted by the respondent to Lucas (England) and that the value thereof had beer shown in the respondent's balance‑sheet. In his submission, therefore, there was a debt and it had to be taken into account for the purpose of computing the respondent's capital in the application of section 80J.

Our attention was drawn to the judgment of this Court in Kesoram Industries and Cotton Mills Ltd. v; CWT (1966) 59 ITR 767. This Court there referred to English judgments and the judgments of this Court to determine what a debt was. It held that a debt was a sum of money which is now payable or will become payable in future by reason of a present obligation. It added that (page 780) "a liability depending upon a contingency is not a debt in praesenti or in ruturo till the contingency happened. But if there is a debt the fact that the amount is to be ascertained does not make it any the less a debt if the liability is certain and what remains is only the quantification of the amount. In short, a debt owed within the meaning of section 2(m) of the Wealth Tax Act can be defined as a liability to pay in praesenti or in ruturo an ascertainable sum of money".

What is relevant for our purpose is that a liability depending upon a contingency is not a debt in praesenti or in ruturo till the contingency has happened. In the present case, the liability of the respondent to Lucas (England) is to issue to Lucas (England) equity shares of a value equivalent to the amount advanced by Lucas (England) for the plant and machinery. It is only if, for any reason, the shares cannot be allotted that the question of compensating Lucas (England) in cash might arise. We do not think that, in these circumstances, it can be said that there was a debt owed by the respondent to Lucas (England) to be taken into account for the purposes of computing the capital under section 80J.

The appeals are, therefore, dismissed. No order as to costs.

M.B.A./1033/FC Appeals dismissed.