Law:

Section:

Rule 5A of the First Schedule, read with rule 2A of the Second Schedule and section 26 of the Excess Profits Tax Act, 1940 - Standard profits - Whether third proviso to rule 5A of First Schedule does not require that amount of interest must actually be paid during period in question nor that it must be debited in books of account; if interest is incurred, language of proviso is satisfied - Held, yes - Whether words 'borrowed money' were used in rule 5A of First Schedule and rule 2A of Second Schedule to indicate and denote money actually borrowed as loan in ordering sense and not money, which, though obtained on some other basis and in some other kind of transaction, could be, on failure of such basis and such transaction, made out to be 'borrowed money' in essence and in law - Held, yes - Assessee-company obtained some money by issue of certain deferred shares - Subsequently, High Court held said issue as not valid and directed for refund of amount obtained on deferred shares and also interest on account of user of money had and received - Central Board of Revenue fixed standard profit of company which was higher than actual profits computed for standard period fixed by assessee - Assessee's claim to increase standard profit by amount of interest which had been paid during standard period on amount obtained for deferred shares, in terms of third proviso to rule 5A of First Schedule, was disallowed by ITO and AAC but allowed by Tribunal - Whether effect of order of High Court was to attach interest liability to amount, received on deferred shares, from beginning and to keep it alive so long as money was not paid back and, therefore, there was 'interest during standard period' within meaning of third proviso to rule 5A of First Schedule - Held, yes - Whether it could not be said that persons who had taken up deferred shares had ever intended to grant loan or that company had ever intended to borrow and even if, it could be taken that company had with it 'money had and received', it was still not borrowed money - Held, yes - Whether, therefore, standard profit could not be increased under third proviso to rule 5A by amount of interest apportionable to standard…

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