Commissioner
of Income Tax, Calcutta Vs. Braithwaite and Co. Ltd. [1993]
INSC 116 (3 March 1993)
Kuldip
Singh (J) Kuldip Singh (J) Kasliwal, N.M. (J)
CITATION:
1993 SCR (2) 187 1993 SCC (2) 262 JT 1993 (3) 159 1993 SCALE (1)761
ACT:
Companies
(Profits) Surtax Act, 1964:
Second
Schedule Rule 1(v)-Term Loan from Bank-Repayment during a period of seven
years-Whether amounts to "repayment during a period of not less than seven
years"-Whether the repayment qualifies for inclusion in the capital base.
HEAD NOTE:
The
respondent-company obtained a Term Loan of Rs.50,00,000 repayable within a
period of seven years. The company included proportionate amount of the said
Term Loan in its capital base and claimed the statutory 10% deduction in the
calculation of its chargeable profits for the assessment year 1965-66. The
Income-tax Officer rejected the claim of the respondent company on the ground
that the repayment of the Term Loan was not during a period of not less than 7
years as contemplated in Rule 1(v) of the Second Schedule to the Companies
(Profits) Surtax Act, 1964. On appeal, the Appellate Assistant Commissioner
reversed the findings of the Income-tax Officer. Revenue preferred further
appeal to the Tribunal which held that only the last instalment of Rs.16,00,000
satisfied the requirements of Rule 1(v); but in respect of the other four instalments
aggregating to Rs.34,00,000 the Tribunal allowed the appeal of the Department
and rejected the claim of the respondent-company. However at the instance of
the respondent-company, Tribunal referred to the High Court the question
whether the Tribunal was right in holding that only Rs. 16,00,000 out of the
loan of Rs. 50,00,000 taken from Bank qualified for inclusion in the capital
base under Rule 1(v). The High Court answered the question in the negative and
in favour of the respondent- company. Against this, Revenue has come in appeal.
Allowing
the appeal , this court,
HELD
:
1. On
a plain reading of the proviso to Rule 1(v) of Second Schedule to the Companies
(Profits) Surtax Act, 1964, it is clear that in 188 order to claim benefit of
the said provision the borrowed money has to be repaid during the period of
more than seven years. The only interpretation which can be given to the
expression "during a period of not less than seven years" is that the
said period should go beyond seven years. The reasoning is simple. The period
of seven years would not complete till the last 'minute' or even the last
'second' of the said period is counted. The period of 'not less than seven
years" can only mean till after the completion of seven years. Therefore
the repayment of borrowed amount during the period of seven years does not mean
repayment 'during a period of not less than seven years". To claim the
benefit under Rule 1 (v) of the Second Schedule to the Act the repayment of the
borrowed money must be during a period which is more than seven years. [191D-G]
2. In
the instant case, the entire term loan of Rs.50,00,000 taken from the bank does
not qualify for inclusion in the capital base under Rule 1(v) of the Second
Schedule to the Act but in view of the fact that the order of the Tribunal
granting relief to the respondent-company to the extent of Rs. 16 lacs has not
been challenged by the department, the Revenue shall be entitled to relief to
the extent of Rs.34 lacs only as not qualified for inclusion in the capital
base. [192E-F]
CIVIL
APPELLATE JURISDICTION : Civil Appeal No. 1054 (NT) of 1977.
From
the Judgment and Order dated 18.7.75 of the Calcutta High Court in I.T.R. No.
44 of 1972.
J. Ramamurthi,
R. Ayyam Perumal and Ms. A Subhashini (N.P.) for the Appellant.
K.C. Dua
for the Respondent.
The
Judgment of the Court was delivered by KULDIP SINGH, J. The respondent-company
obtained a Term Loan of Rs. 50,00,000 from the National Grindlays Bank Ltd. The
agreement dated August
1, 1964 provided for
repayment of the loan in five instalments. The last instalment was to be paid
on July 31, 1971. Thus the loan was to be paid back
within the period of seven years from the date of the agreement. The question
for our consideration is whether the repay 189 ment under the agreement was
"during a period of not less than seven years" within the proviso to
Rule 1(v) of the Second Schedule to the Companies (Profits) Surtax Act, 1964
(the Act).
The
Act imposed a surtax n so much of the chargeable profits of every company as
exceeded the statutory deduction.
"Chargeable
profits" were defined by Section 2(5) of the Act to mean the total income
as computed under the Income-tax Act, 1961 and adjusted in accordance with the
First Schedule to the Act. "Statutory deduction" was defined by
Section 2(8) of the Act to mean an amount equal to ten per cent of the capital
of the company as computed in accordance with the provisions of the Second Schedule
to the Act or an amount of Rs. 2,00,000 whichever was greater. Rule 1 of the
Second Schedule to the Act provided how the capital of a company was to be
computed. The relevant part of the Rule is as under:
"1.
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 (i)..........
(ii)..............
(iii).............
(iv).............
(v)
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 the Official Gazette or any banking institution (not being a
financial institution notified as aforesaid) or any person in a country outside
India :
Provided
that such moneys are borrowed for the creation of a capital asset in India and the agreement under which such
moneys are borrowed provides for the repayment thereof during a period of not
less than seven years.
190
EXPLANATION:.........................
The
agreement dated August
1, 1964 provided for
repayment of the loan in five instalments as follows :
1. On July 31, 1967 Rs. 5 lakhs
2. On July 31, 1968 Rs. 7 lakhs
3. On July 31, 1969 Rs. 10 lakhs
4. On July 31, 1970 Rs. 12 lakhs
5. On
July 31, 1971 Rs. 16 lakhs The respondent-company included proportionate amount
of the Term Loan of Rs. 50,00,000 in its capital base and claimed statutory
percentage of the said amount as deduction in the calculation of its chargeable
profits assessable for the assessment year 1965- 66. The Income-tax Officer
rejected the claim of the respondent-company on the ground that the repayment
of the Term Loan was not "during a period of not less than seven
years". On appeal the Appellate Assistant Commissioner reversed the
findings of the Income-tax Officer and held that the provisions of Rule 1(v) of
the Second Schedule to the Act were satisfied and as such the
respondent-company was entitled to include the Term Loan for the purposes of
computing the chargeable profits. The Department preferred further appeal to
the Income-tax Appellate Tribunal. The Tribunal held that only the last instalment
of Rs. 16,00,000 was payable 'during a period of not less than seven
years" and as such satisfied the requirements of Rule 1(v) but so far as
the other four instalments aggregating to Rs. 34,00,000 were concerned the
Tribunal allowed the appeal of the Department and rejected the claim of the
respondent-company. At the instance of the respondent-company the Appellate
Tribunal referred the following question for adjudication :
"Whether,
on the facts and in the circumstances of the case, the Tribunal was right in
holding that only Rs. 16,00,000 out of the loan of Rs. 50,00,000 taken from the
Bank qualified for inclusion in the capital base under rule 1(v) of the Second
Schedule to the Companies (Profits) Surtax Act, 1964 ?" 191 The High Court
answered the question in the negative and in favour of the respondent-company.
This appeal by special leave is by the Incometax Department against the
judgment of the High Court.
Learned
counsel for the appellant contended that no part of the Term Loam of Rs. 50,00,000
qualified for inclusion in the capital base because the provisions of Rule 1(v)
of the Second Schedule to the Act were not satisfied. According to him under
the Term Loan-Agreement dated August 1, 1964
the last instalment was to be paid on July 31, 1971 and as such the period of repayment
was less than seven years. He further contended that in the context the
expression "during a period of not less than seven years", means a
period or more than seven years. The learned counsel for the respondent, on the
other hand, argued that the Term Loan was payable within the period of seven
years. According to him the period of seven years is obviously a period which
is "not less than seven years".
We are
of the view that on the plain reading of the proviso to Rule 1(v), Second
Schedule to the Act it is clear that in order to claim benefit of the said
provision the borrowed money has to be repaid during the period of more than
seven years. The only interpretation which can be given to the expression
"during a period of not less than seven years" is that the said
period should go beyond seven years. The reasoning is simple. The period of
seven years would not complete till the last 'minute' or even the last 'second'
of the said period are counted. In other words till the last minute of the
seven years period is completed the period remains less than seven years. In
the present case the agreement was entered on August 1, 1964. The last instalment
was to be paid on July 31, 1971. The seven years were to complete at 12 a.m.
(between the night of July 31, 1971 and August 1, 1971). Even if the loan was
paid back at 11.59 p.m. on July 31, 1971 the period would be less than seven
years by one minute. It is, therefore, obvious that the period of "not
less than seven years" can only mean till after the completion of seven
years. We, therefore, hold that the repayment of borrowed amount during the
period of seven years does not mean repayment "during a period of not less
than seven years". To claim the benefit under Rule 1(v) of the Second Schedule
to the Act the repayment of the borrowed money must be during a period which is
more than seven years.
We
find support in the view taken by us in the following cases. In 192 Ramanasari
v. Muthusami Naik, ILR 30 Madras 248, Section 1.8 of the Madras Rent Recovery
Act VIII of 1865 required that, in fixing the day of sale, not less than seven
days must be allowed 'from the time of-the public notice and not less than 30
days from the date of distraint'. The sale was held on the 13th February, but
the notice was published on 6th February. It was held that 'not less than'
means the same as 'clear' and seven whole days must elapse between the day of
the notice and the day fixed for sale. In re 77 The Railway Sleepers Supply
Company LJ 1885 54 Ch 720, the expression 'not less' than given number of days
means 'clear days'. It was held that the expression 'not less' indicates 'a
minimum'.
In the
present case the whole of the Term Loan was payable within the period of seven
years and as such the loan of Rs.50,00,000 taken by the respondent-company from
National Grindlays Bank was not qualified for inclusion in the capital base
under Rule 1(v) of the Second Schedule to the Act The Tribunal in part and the
High Court were not justified in deciding the issue in favour of the
respondent- company. Since the order of the Tribunal, granting relief to the
respondent-company to the extent of Rs.16,00,000 has become final, no
interference is called for to that extent.
We
allow this appeal, set aside the judgment of the High Court and answer the
question in the manner that the entire term loan of Rs.50,00,000 taken from the
bank does not qualify for inclusion in the capital base under Rule 1(v) of the
Second Schedule to the Act but in view of the fact that the order of the
Tribunal granting relief to the respondent- company to the extent of Rs.16 lacs
has not been challenged by the department, the Revenue shall be entitled to
relief to the extent of Rs. 34 lacs only as not qualified for inclusion in the
capital base. In the facts and circumstan- ces of this case, we leave the
parties to bear their own costs.
G.N.
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