Kuldip Singh, J. - (1.) 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 repayment 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).
(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 S. 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 S. 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) 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 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 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 ;