COMMISSIONER OF INCOME TAX Vs. STANDARD PHARMACEUTICALS LTD

JUDGEMENT

(1.) In this reference under Section 256(1) of the I.T. Act, 1961, the following question has been referred to this court:

(2.) The assessee is a company. It carries on business in the manufacture and sale of pharmaceutical goods. It closes its accounts on 31st March. Its surtax assessment for the assessment year 1965-66 covered the previous year ended 31st March, 1965. On 24th August, 1962, the assessee-company issued in favour of the Bank of Baroda without any payment having been made by it, 6 1/2% first mortgage debentures of the value of Rs. 20 lakhs and offered the same as collateral security against cash credit arrangements with the State Bank for financing its capital project of penicillin division. The dispute before the Tribunal was whether such debentures could be included in the computation of the assessee-company's capital for the purpose, of its surtax assessment for the assessment year 1965-66. This question has to be resolved in the background of Rule 1, Clauses (iv) and (v) of Schedule II to the C.(P.)S.T. Act, 1964, as it stood at the relevant time. The said provision was as follows :

(3.) With effect from 1st April, 1974, this provision has undergone a little change and Clause (iv) of Rule 1 of Schedule II, with which we are concerned, reads as follows: