Judgment

KULDIP SINGH, J.

( 1 ) - The respondent-company obtained a term loan of Rs. 50,00,000. 00 from the National Grindlays Bank Ltd. The agreement dated 1/08/1964 provided for repayment of the loan in five instalments. The last instalment was to be paid on 31/07/1971. 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 repayment under the agreement was "during a period of not less than seven years" within the proviso to Rule l (v) of the Second Schedule to the Companies (Profits) Surtax Act, 1964 (the Act ).

( 2 ) THE Act imposed a surtax on so much of the chargeable profits of every company as exceeded the statutory deductions. "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. 00 whichever was greater. Rule I 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) to (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. Explanation. * * *"

( 3 ) THE agreement dated 1/08/1964 provided for repayment of the loan in five instalments as follows:

( 4 ) THE respondent-company included proportionate amount of the term loan of Rs. 50,00,000. 00 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". Onappeal the Appellate Assistant Commissioner reversed the findings of the Income Tax Officer and held that the provisions of Rule l (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. 00 was payable "during a period of not less than seven years" and as such satisfied the requirements of Rule I (v) but so far as the other four instalments aggregating to Rs. 34,00,000. 00 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. 00 out of the loan of Rs. 50,00,000. 00 taken from the Bank qualified for inclusion in the capital base under Rule l (v) of the Second Schedule to the Companies (Profits) Surtax Act, 1964?"

( 5 ) THE High court answered the question in the negative and in favour of