COMMISSIONER OF INCOME TAX Vs. INDABRATOR LIMITED

JUDGEMENT

(1.) In this departmental reference relating to the assessee's surtax assessment for the assessment years 1967 -68 to 1972 -73, the Tribunal has referred to this court the following question of law for our opinion under section 256(1) of the Income -tax Act, 1961, as applied to surtax under section 18 of the Companies (Profits) Surtax Act, 1964 : 'Whether, on the facts and in the circumstances of the case and in law, the Appellate Tribunal was justified in holding that the amount of Rs. 1 lakh representing the value of shares allotted to the two foreign collaborators in consideration of supply of technical know -how was includible in the computation of capital under rule 1 of the Second Schedule to Companies (Profits) Surtax Act, 1964 ?'

(2.) BRIEFLY stated the relevant facts are that the assessee had entered into an agreement dated April 15, 1964, with two foreign companies, namely, the Wheelabrator Corporation, Indiana, U. S. A. and Tilghman's Ltd., Cheshire, England, under which, in consideration of the said two companies' furnishing to the assessee, designs specified under respective sections of the agreement, the assessee undertook to issue shares to each of the foreign companies of the total par value of Rs. 50,000 free of all deductions on account of Indian income -tax or otherwise. The shares were, accordingly, allotted and the technical designs and know -how obtained by the assessee under the agreement were shown as part of the fixed assets of the assessee -company in its balance -sheet at the value of Rs. 1 lakh representing the par value of the shares allotted to the two companies. It is common ground that, in the income -tax assessment for the relevant years, the technical designs and know -how obtained by the assessee were treated as plant entitled to depreciation allowance and development rebate.

(3.) EXPLANATION 1 to rule 2, however, provides that paid -up share capital or reserve brought into existence by creating or increasing any book asset in not capital for computing the capital of a company for the purposes of this Act.