Law:

Section:

Second Schedule to the Companies (profits) Surtax Act, 1964 - Capital - Computation of - Assessment year 1965-66 - In pursuance of an agreement entered into between Government of India and UNICEF and WHO, company received certain plant and machinery free of cost - As per direction of Government of India, assessee was required to charge an amount equal to estimated depreciation to cost of production in form of rent and then was to make contra credit to a suitable reserve - Assessee however did not charge estimated depreciation in form of rent in its manufacturing account but charged it to profit and loss account and made contra credit to provision for lease money in balance sheet - Assessee's claim was that while computing capital for purpose of surtax, provision for lease money should also be added to arrive at capital of company under second schedule to Act - Surtax Officer rejected assessee's claim holding that amount was simply a provision and could not be termed as 'reserve' - Tribunal upheld order passed by Surtax Officer - Whether since no rent was payable to Government as per instructions of Govt., no liability to pay arose on part of assessee and so amount in question could be taken only as 'reserve' - Held, yes - Whether, therefore, aforesaid amount was to be included in computation of capital of assessee - Held, yes FACTS The Government of India entered into an agreement with UNICEF and WHO, whereby the Government of India was to receive free of cost plant and machinery and free technical assistance for manufacture of DDT in India. Pursuant thereto, the Government of India incorporated a joint stock company, the assessee. The plant and machinery received by the Government of India was allowed to be used by the assessee with a direction that the assessee would discharge the obligations of the Government of India under the agreement. As per the decision of the Government, if and when the ownership of the plant and equipment was transferred to the company, the assets might be taken over in the books of the company at their original value. The plant and machinery were received sometimes in year 1955 or 1956. According to the direction of the Government,…

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