Law:

Section:

Second schedule to the Companies (Profits) Surtax act, 1964 - Capital - Computation of - Assessee - Company had acquired certain dollar loan through ICICI for purposes of acquiring capital asset - There was certain balance to be paid by assessee out of said loan on 6-6-1966, when due to devaluation of Indian rupee assessee's liability was increased by certain amount - Whether said increase in assessee's liability was to be taken into account while computing capital for purpose of determining 'statutory deduction' - Held, yes Facts By an agreement dated 20-7-1962, entered into between the assessee and the Industrial Credit and Investment Corporation of India (ICICI), the assessee, for the purpose of increasing the capacity of its caustic soda plant, utilised a certain dollar loan from the International Bank of Reconstruction and Development through ICICI. This loan was repayable in dollars. There was a certain balance due from the assessee from out of the said loan on 6-6-1966, when by virtue of the devaluation of the Indian rupee on that day the liability of the assessee in respect of the said dollar payment in terms of Indian rupee increased by Rs. 11,71,504.90. In the assessment, in respect of surtax for the relevant assessment years, the assessee claimed that the said increase in the liability should be included in computing its capital for the purpose of determining the statutory deduction available under the Act. The STO disallowed the assessee's claim. On appeal, the Tribunal, however, held that the said amount of Rs. 11,71,504.90 was liable to be included in the computation of the capital of the assessee for the aforesaid purpose. On reference, the revenue contended that the aforesaid increase in the liability on account of devaluation was not liable to be included in computing the capital of the assessee as the enhanced liability was only notional because the amount of loan in terms of foreign currency remained unchanged and there was no fresh borrowing. It was further contended that as a result of the aforesaid additional liability, no capital asset had been created by the assessee and, hence, the said amount could not be included in the computation of…

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