Law:

Section:

RULE 1(v) [AS IT STOOD PRIOR TO OMISSION WITH EFFECT FROM 1-4-1977] OF THE SECOND SCHEDULE TO THE COMPANIES (PROFITS) SURTAX ACT, 1964 - CAPITAL - COMPUTATION OF - ASSESSEE PURCHASED MACHINERY FROM A FOREIGN SELLER ON BASIS OF MUTUAL AGREEMENT WHEREUNDER ASSESSEE WAS TO PAY PRICE OF MACHINERY TO FOREIGN SELLER IN INSTALMENTS - ASSESSEE CLAIMED THAT SUM REPRESENTING BALANCE OF PRICE OF MACHINERY PAYABLE TO FOREIGN SUPPLIER BE TREATED AS FORMING PART OF CAPITAL BASE FOR PURPOSES OF SURTAX ON GROUND THAT IMPUGNED AMOUNT, PAYMENT OF WHICH WAS GUARANTEED BY AN INDIAN BANK IN FAVOUR OF FOREIGN SUPPLIER, CONSTITUTED BORROWED MONEY - WHETHER IMPUGNED UNPAID PURCHASE MONEY CONSTITUTED 'MONEYS BORROWED' AND ASSUMED THE CHARACTER OF A LOAN AS A RESULT OF GUARANTEE GIVEN BY BANK SO AS TO BE INCLUDIBLE IN THE ASSESSEE'S CAPITAL BASE - HELD, ON FACTS, NO WORDS AND PHRASES - EXPRESSION 'MONEYS BORROWED' OCCURRING IN RULE 1(v) OF SECOND SCHEDULE TO THE COMPANIES (PROFITS) SURTAX ACT. 1964 Facts The assessee-company purchased certain machinery from a foreign seller in accordance with terms and conditions embodied in a mutual agreement. The agreement provided for the payment by the assessee in instalments of the price for which the foreign seller had agreed to make available the machinery to the assessee. However, a sum of Rs. 7,43,750 payable by the assessee towards consideration for the acquisition of capital asset to the foreign supplier was shown and treated as long-term loan in the books of the assessee. For purposes of assessment to surtax, the assessee claimed that the impugned amount represented moneys borrowed by the company for the acquisition of capital asset and should, therefore, be included in the computation of capital. The ITO disallowed the claim on the ground that the assessee had not borrowed any money but had merely agreed to pay the consideration for the purchase of machineries in instalments to the foreign seller and such amounts could not be included in the capital base. Before the AAC, the assessee contended that the balance of unpaid consideration would fall within the scope of the expression 'moneys borrowed' under rule 1(v) of the Second Schedule and…

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