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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

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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

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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

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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).............

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(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.

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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

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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

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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

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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