Law:

Section:

Para 1, item (v) of Schedule II to Companies (Profits) Surtax Act, 1964 - Computation of capital - Assessment year 1964-65 - Assessee-company claimed that monies borrowed from certain financial institution for discharging its earlier debts which were incurred for acquisition of machinery should be included in capital computation for purpose of liability to surtax - Whether in view of specific language in proviso to item (v) of para 1 of Schedule II to Act, it is clear that borrowing must be for purpose of bringing into existence a capital asset, and proviso will have no application to a case where creation of a capital asset in India had already been made prior to borrowing - Held, yes - Whether creation of capital asset will not take into account any intangible additions to assets of company as shown in its balance sheet - Held, yes - Whether in instant case since creation of capital assets had preceded borrowings, money borrowed was not liable to be included as capital for purpose of surtax assessment - Held, yes Words and phrases : Words 'for creation of capital assets in India' as occurring in para 1, item (v) of Schedule II to the Companies (Profits) Surtax Act, 1964 FACTS The assessee-company commenced acquiring fixed assets like machinery and buildings from 1949. It augmented its resources consisting of share capital by accepting loans often called fixed deposits from various parties. The assessee utilised these monies obtained on such loans for the purpose of acquiring fixed assets for the company. By an agreement dated 23-4-1951, entered into between the assessee and the Madras Industrial Investment Corporation Ltd., the assessee borrowed a sum of Rs. 5,00,000 for the specific purpose of discharging the then liabilities of the assessee, namely, a sum of Rs. 5,00,000. Again, under another agreement dated 24-3-1959, entered into between the assessee and the MIIC Ltd., the assessee borrowed a further sum of Rs. 11,50,000 of which a sum of Rs. 4,20,000 was earmarked for payment towards machinery supplied and the balance of Rs. 7,30,000 was earmarked for payment towards deposits taken from the public. The concerned assessment year was 1964-65. As on…

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