Law:

Section:

Second Schedule to the Companies (Profits) Surtax Act, 1964 - Capital - Computation of - Assessment years 1967-68 to 1972-73 - Whether amount of Rs. 1 lakh representing value of shares allotted to two foreign collaborators in consideration for supply of technical know-how was includible in computation of capital under rule 1 of Second Schedule - Held, yes - Whether in such a case it could be said that a book asset was created to bring capital into existence within meaning of Explanation 1 to rule 2 of the Second Schedule - Held, no FACTS The assessee-company had entered into an agreement with two foreign companies under which it allotted shares of the value of Rs. 1 lakh to the foreign collaborators in consideration for supply of technical know-how. The Tribunal held that the amount of Rs. 1 lakh representing the value of shares allotted to the two foreign collaborators in consideration for supply of technical know-how was includible in the computation of capital under rule 1 of the Second Schedule. HELD Explanation 1 to rule 2 of the Second Schedule provides that a paid-up share capital or reserve brought into existence by creating or increasing any book asset is not capital for computing the capital of a company. What the assessee had done in this case was that it had straightway issued shares in consideration of the drawings and designs received. Thus, the Tribunal was right when it observed that when an asset is actually purchased for consideration from a third party, the shares issued for that purpose do not fall within the mischief of the aforesaid Explanation. An asset actually purchased does not fall within the Explanation as in this case. As such it could not be said in the instant case that a book asset was created to bring capital into existence. The amount of Rs. 1 lakh was, thus, includible in capital base of the assessee-company. G.S. Jetly, P.S. Jetly and K.C. Sidhwa for the Applicant. S J. Mehta and I.M. Munim for the Respondent. JUDGMENT Sugla, J.-In this departmental reference, relating to the assessee's surtax assessment for the assessment years 1967-68 to 1972-73, the Tribunal has referred to this Court the following question of law for our…

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