Law:

Section:

Rule 1(v)of second schedule to the companies (Profits) surtax Act, 1964 [prior to its omission with effect from 1-4-1977] - capital-Computation of-Assessee, a 100 per cent subsidiary of foreign company, was converted into a public limited company and proposed to raise its issued share capital-Foreign company sold part of its shareholdings to public and left sale proceeds with assesses as loan for a period of seven years without formal agreement-Assessee returned loan to foreign company in two instalmemts-Whether tribunal correct in holding that impugned loan represented moneys borrowed from a person in a country outside india within the meaning of rule 1(v)-Held, on facts, yes-Whether tribunal was correct in its finding that impugned borrow-ings were made for a period of seven years and were utilised for expansion of capital base of assessee-company-Held, on facts, yes-Whether money had been actually borrowed for creation of a capital asset in india within the meaning of proviso to said rule 1(v)-Held that tribunal gave no such categorical finding and also no categorical evidence was on record [matter, accordingly, remanded back to tribunal for its decision] Facts The assessee, an Indian company, was a 100 per cent subsidiary of a foreign company A. It was converted in June 1958 into a public limited company and it proposed to raise its issued share capital. Consequently, A sold 30 per cent of its shareholdings to the public and agreed to leave with the assessee-company, as a loan for a period of seven years, its sale proceeds less tax liabilities at a variable rate of interest. A had also obtained necessary permission from the Reserve Bank of India. Although there was no formal agreement, A had confirmed the said retention by way of loan of Rs. 75 lakhs in its two letters issued to the assessee-company in November 1957. A had actually kept the loan amount in June 1958 and was given back the same in two instalments of Rs. 55,58,166 and Rs. 19,41,834 on 19-3-1966 and 23-5-1966, respectively. For the assessment year 1964-65, the assessee claimed the inclusion of the said amount of Rs. 75 lakhs in capital computation under rule 1(v) of the Second Schedule. The ITO…

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