COMMISSIONER OF INCOME TAX Vs. INDIAN OXYGEN LTD

JUDGEMENT

(1.) This reference relates to the assessment year 1964-65. The question arises as to the treatment of Rs. 75 lakhs representing a loan from the British Oxygen Co. Ltd., a company incorporated in the United Kingdom. The assessee-company is an Indian company, which was a 100% subsidiary of the British Oxygen Co. Ltd. till 1958. In 1958, the company was converted into a public limited company, as a result of which 30% of the shareholdings of the assessee-company had to be given up by the British Oxygen Co. Ltd. in favour of the public. The result was that the British company, viz., the British Oxygen Co. Ltd., sold 6,00,000 shares of Rs. 10 each with a premium of Rs. 35 for each share. The sale proceeds as reduced by any tax liabilities, if any, were agreed to be left with the assessee-company as a loan at a rate of interest, tentatively arrived at, of 6%, but which was variable. In November, 1957, the British Oxygen Co. Ltd. wrote a letter to the assessee in which it was made clear that the sale proceeds would be kept with the assessee for a period of 7 years at a rate of 6% which was variable. Unfortunately, the letters negotiating the loans and the letter granting this loan had not been set out in extenso in any of the orders or annexures to the statement of case. Here we are setting out the gist of the letters as summarised in para. 2 of the statement of case. It is further stated that the permission of the Reserve Bank was also obtained, as a result of which the sale proceeds of 6,00,000 ordinary shares in question hold by the British Oxygen Co. Ltd. less certain deductions for tax liabilities, etc:, were allowed to be kept as a loan with the assessee for a period of seven years on certain terms. The sum was actually returned to the British Oxygen Co. Ltd. in two instalments of Rs. 55,58,166 and Rs. 19,41,834 on the 10th March, 1966, and 23rd May, 1966, respectively. The sum had actually been kept in June, 1958, and were returned on the above two dates which fell beyond the period of 7 years.

(2.) In these circumstances, the assessee-company requested the ITO to treat the amount of Rs. 75,00,000 as part of the capital base of the company for surtax purposes under Clause (1)(v) of the Second Schedule of the Companies (Profits) Surtax Act, 1964. In this connection, it would be appropriate, in the view we have taken, to set out the relevant portion of the order of the ITO

(3.) He, therefore, did not accept the assessee's contention.