PETITIONER: COMMISSIONER OF INCOME TAX, CALCUTTA Vs. RESPONDENT: BRAITHWAITE AND CO. LTD. DATE OF JUDGMENT03/03/1993 BENCH: KULDIP SINGH (J) BENCH: KULDIP SINGH (J) KASLIWAL, N.M. (J) CITATION: 1993 SCR (2) 187 1993 SCC (2) 262 JT 1993 (3) 159 1993 SCALE (1)761 ACT: Companies (Profits) Surtax Act, 1964: Second Schedule Rule 1(v)-Term Loan from Bank-Repayment during a period of seven years-Whether amounts to "repayment during a period of not less than seven years"-Whether the repayment qualifies for inclusion in the capital base. HEADNOTE: The respondent-company obtained a Term Loan of Rs. 50,00,000 repayable within a period of seven years. The company included proportionate amount of the said Term Loan in its capital base and claimed the statutory 10% deduction in the calculation of its chargeable profits for the assessment year 1965-66. The Income-tax Officer rejected the claim of the respondent company on the ground that the repayment of the Term Loan was not during a period of not less than 7 years as contemplated in Rule 1(v) of the Second Schedule to the Companies (Profits) Surtax Act, 1964. On appeal, the Appellate Assistant Commissioner reversed the findings of the Income-tax Officer. Revenue preferred further appeal to the Tribunal which held that only the last instalment of Rs. 16,00,000 satisfied the requirements of Rule 1(v); but in respect of the other four instalments aggregating to Rs. 34,00,000 the Tribunal allowed the appeal of the Department and rejected the claim of the respondent-company. However at the instance of the respondent-company, Tribunal referred to the High Court the question whether the Tribunal was right in holding that only Rs. 16,00,000 out of the loan of Rs. 50,00,000 taken from Bank qualified for inclusion in the capital base under Rule 1(v). The High Court answered the question in the negative and in favour of the respondent- company. Against this, Revenue has come in appeal. Allowing the appeal , this court, HELD : 1. On a plain reading of the proviso to Rule 1(v) of Second Schedule to the Companies (Profits) Surtax Act, 1964, it is clear that in 188 order to claim benefit of the said provision the borrowed money has to be repaid during the period of more than seven years. The only interpretation which can be given to the expression "during a period of not less than seven years" is that the said period should go beyond seven years. The reasoning is simple. The period of seven years would not complete till the last 'minute' or even the last 'second' of the said period is counted. The period of 'not less than seven years" can only mean till after the completion of seven years. Therefore the repayment of borrowed amount during the period of seven years does not mean repayment 'during a period of not less than seven years". To claim the benefit under Rule 1 (v) of the Second Schedule to the Act the repayment of the borrowed money must be during a period which is more than seven years. [191D-G] 2. In the instant case, the entire term loan of Rs. 50,00,000 taken from the bank does not qualify for inclusion in the capital base under Rule 1(v) of the Second Schedule to the Act but in view of the fact that the order of the Tribunal granting relief to the respondent-company to the extent of Rs. 16 lacs has not been challenged by the department, the Revenue shall be entitled to relief to the extent of Rs.34 lacs only as not qualified for inclusion in the capital base. [192E-F] JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1054 (NT) of
1977.
From the Judgment and Order dated 18.7.75 of the Calcutta
High Court in I.T.R. No. 44 of 1972.
J. Ramamurthi, R. Ayyam Perumal and Ms. A Subhashini
(N.P.) for the Appellant.
K.C. Dua for the Respondent.
The Judgment of the Court was delivered by
KULDIP SINGH, J. The respondent-company obtained a Term Loan
of Rs. 50,00,000 from the National Grindlays Bank Ltd. The
agreement dated August 1, 1964 provided for repayment of the
loan in five instalments. The last instalment was to be
paid on July 31, 1971. Thus the loan was to be paid back
within the period of seven years from the date of the
agreement. The question for our consideration is whether
the repay
189
ment under the agreement was “during a period of not less
than seven years” within the proviso to Rule 1(v) of the
Second Schedule to the Companies (Profits) Surtax Act, 1964
(the Act).
The Act imposed a surtax n so much of the chargeable profits
of every company as exceeded the statutory deduction.
“Chargeable profits” were defined by Section 2(5) of the Act
to mean the total income as computed under the Income-tax
Act, 1961 and adjusted in accordance with the First Schedule
to the Act. “Statutory deduction” was defined by Section
2(8) of the Act to mean an amount equal to ten per cent of
the capital of the company as computed in accordance with
the provisions of the Second Schedule to the Act or an
amount of Rs. 2,00,000 whichever was greater. Rule 1 of the
Second Schedule to the Act provided how the capital of a
company was to be computed. The relevant part of the Rule
is as under:
“1. Subject to the other provisions contained
in this Schedule, the capital of a company
shall be the aggregate of the amounts as on
the first day of the previous year relevant to
the assessment year, of
(i)……….
(ii)…………..
(iii)………….
(iv)………….
(v) any moneys borrowed by it from
Government or the Industrial Finance
Corporation of India or the Industrial Credit
and Investment Corporation of India or any
other financial institution which the Central
Government may notify in this behalf in the
Official Gazette or any banking institution
(not being a financial institution notified as
aforesaid) or any person in a country outside
India :
Provided that such moneys are borrowed for the
creation of a capital asset in India and the
agreement under which such moneys are borrowed
provides for the repayment thereof during a
period of not less than seven years.
190
EXPLANATION:…………………….
The agreement dated August 1, 1964 provided
for repayment of the loan in five instalments
as follows :
1. On July 31, 1967 Rs. 5 lakhs
2. On July 31, 1968 Rs. 7 lakhs
3. On July 31, 1969 Rs. 10 lakhs
4. On July 31, 1970 Rs. 12 lakhs
5. On July 31, 1971 Rs. 16 lakhs
The respondent-company included proportionate amount of the
Term Loan of Rs. 50,00,000 in its capital base and claimed
statutory percentage of the said amount as deduction in the
calculation of its chargeable profits assessable for the
assessment year 1965- 66. The Income-tax Officer rejected
the claim of the respondent-company on the ground that the
repayment of the Term Loan was not “during a period of not
less than seven years”. On appeal the Appellate Assistant
Commissioner reversed the findings of the Income-tax Officer
and held that the provisions of Rule 1(v) of the Second
Schedule to the Act were satisfied and as such the
respondent-company was entitled to include the Term Loan for
the purposes of computing the chargeable profits. The
Department preferred further appeal to the Income-tax
Appellate Tribunal. The Tribunal held that only the last
instalment of Rs. 16,00,000 was payable ‘during a period of
not less than seven years” and as such satisfied the
requirements of Rule 1(v) but so far as the other four
instalments aggregating to Rs. 34,00,000 were concerned the
Tribunal allowed the appeal of the Department and rejected
the claim of the respondent-company. At the instance of the
respondent-company the Appellate Tribunal referred the
following question for adjudication :
“Whether, on the facts and in the
circumstances of the case, the Tribunal was
right in holding that only Rs. 16,00,000 out
of the loan of Rs. 50,00,000 taken from the
Bank qualified for inclusion in the capital
base under rule 1(v) of the Second Schedule to
the Companies (Profits) Surtax Act, 1964 ?”
191
The High Court answered the question in the negative and in
favour of the respondent-company. This appeal by special
leave is by the Incometax Department against the judgment of
the High Court.
Learned counsel for the appellant contended that no part of
the Term Loam of Rs. 50,00,000 qualified for inclusion in
the capital base because the provisions of Rule 1(v) of the
Second Schedule to the Act were not satisfied. According to
him under the Term Loan-Agreement dated August 1, 1964 the
last instalment was to be paid on July 31, 1971 and as such
the period of repayment was less than seven years. He
further contended that in the context the expression “during
a period of not less than seven years”, means a period or
more than seven years. The learned counsel for the
respondent, on the other hand, argued that the Term Loan was
payable within the period of seven years. According to him
the period of seven years is obviously a period which is
“not less than seven years”.
We are of the view that on the plain reading of the proviso
to Rule 1(v), Second Schedule to the Act it is clear that in
order to claim benefit of the said provision the borrowed
money has to be repaid during the period of more than seven
years. The only interpretation which can be given to the
expression “during a period of not less than seven years” is
that the said period should go beyond seven years. The
reasoning is simple. The period of seven years would not
complete till the last ‘minute’ or even the last ‘second’ of
the said period are counted. In other words till the last
minute of the seven years period is completed the period
remains less than seven years. In the present case the
agreement was entered on August 1, 1964. The last
instalment was to be paid on July 31, 1971. The seven years
were to complete at 12 a.m. (between the night of July 31,
1971 and August 1, 1971). Even if the loan was paid back at
11.59 p.m. on July 31, 1971 the period would be less than
seven years by one minute. It is, therefore, obvious that
the period of “not less than seven years” can only mean till
after the completion of seven years. We, therefore, hold
that the repayment of borrowed amount during the period of
seven years does not mean repayment “during a period of not
less than seven years”. To claim the benefit under Rule
1(v) of the Second Schedule to the Act the repayment of the
borrowed money must be during a period which is more than
seven years.
We find support in the view taken by us in the following
cases. In
192
Ramanasari v. Muthusami Naik, ILR 30 Madras 248, Section 1.8
of the Madras Rent Recovery Act VIII of 1865 required that,
in fixing the day of sale, not less than seven days must be
allowed ‘from the time of-the public notice and not less
than 30 days from the date of distraint’. The sale was held
on the 13th February, but the notice was published on 6th
February. It was held that ‘not less than’ means the same
as ‘clear’ and seven whole days must elapse between the day
of the notice and the day fixed for sale. In re 77 The
Railway Sleepers Supply Company LJ 1885 54 Ch 720, the
expression ‘not less’ than given number of days means ‘clear
days’. It was held that the expression ‘not less’ indicates
‘a minimum’.
In the present case the whole of the Term Loan was payable
within the period of seven years and as such the loan of Rs.
50,00,000 taken by the respondent-company from National
Grindlays Bank was not qualified for inclusion in the
capital base under Rule 1(v) of the Second Schedule to the
Act The Tribunal in part and the High Court were not
justified in deciding the issue in favour of the respondent-
company. Since the order of the Tribunal, granting relief
to the respondent-company to the extent of Rs. 16,00,000 has
become final, no interference is called for to that extent.
We allow this appeal, set aside the judgment of the High
Court and answer the question in the manner that the entire
term loan of Rs. 50,00,000 taken from the bank does not
qualify for inclusion in the capital base under Rule 1(v) of
the Second Schedule to the Act but in view of the fact that
the order of the Tribunal granting relief to the respondent-
company to the extent of Rs.16 lacs has not been challenged
by the department, the Revenue shall be entitled to relief
to the extent of Rs. 34 lacs only as not qualified for
inclusion in the capital base. In the facts and circumstan-
ces of this case, we leave the parties to bear their own
costs.
G.N.
193