KANNAPIRAN MILLS LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal, Madras Bench, has referred the following question of law under Section 256(1) of the Income-tax Act, 1961, as applied to surtax by Section 18 of the Companies (Profits) Surtax Act, 1964 (hereinafter referred to as "the Act"). for the opinion of this court:

(2.) THE facts which have given rise to the above question are fairly simple THE assessee-company commenced acquiring fixed assets like machinery and buildings 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 outstanding under the second loan. THE Income-tax Officer included the entire outstanding amount of Rs. 8,83,607 in the capital under the Second Schedule to the Act, to which we shall make detailed reference later. However, the Commissioner of Income-tax revised that order under Section 16 of the Act after giving an opportunity to the assessee and directed that out of the sum of Rs. 8,83,607, the amount of Rs. 5,89,607 had to be treated as money not borrowed for the creation of capital asset in India and hence will have to be excluded from the computation of capital. Against this order of the Commissioner of Income-tax, the assessee preferred an appeal. THE Income-tax Appellate Tribunal substantially affirmed the order of the Commissioner except to the extent of determining the amount to be excluded as Rs. 5,71,747 as against Rs. 5,89,607 directed to be excluded by the Commissioner. It is this conclusion of the Tribunal that is challenged in the form of the question referred to this court.

(3.) IT is the meaning of this item which has to be determined in the present proceedings.