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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 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

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

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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.               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

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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 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

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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