Chakravartti, C.J. - (1.) This is a reference under Section 21, Excess Profits Tax Act, read with Section 66(1), Income-tax Act, of a short question of law to which the third proviso to Rule 5A of Schedule I to the former Act has given rise. The question reads as follows: "Whether on the facts and in the circumstances, of this case, the amount of pronts of the standard period as fixed by the central Board of Revenue under Section 26(1), Excess Profits Tax Act, 1940, requires to be increased under the third, proviso to Rule 5A of Schedule I of the said Act by the amount of interest apportionabie to the standard period on deferred snare capital, later on treateu as borrowings even though such interest had not been charged to the profit and loss-account in the standard period."
(2.) The facts are simple. The assessee is a limited company and it appears that in 1937 it issued 1,45,000 deferred shares and obtained some money from those who took them up. Subsequently, the validity of the issue of those shares came to be disputed and upon a suit being brought, this. Court, by an order dated 16th July 1941, held that the resolution deciding on the issue of the shares, and the allotment of them thereby was of no effect, and that the Share Register of the company should be rectified by elimination of the entries relating, to those shares. The assessee was further directed to refund the amount it had obtained on the deferred shares and the amount directed to be refunded was Re. 1/14/- per share and a further sum of -/8/- annas "as interest on account of user of money had and received" also to be paid per share. Apparently what had been received on, account of each share was a sum of Rs. 2/- because the order directs Re. 1/14/- to be paid in respect of each share after deducting annas 2 paid as dividend. Tne total amount of interest so directed to be paid was Rs. 72,500/-.
(3.) The order having been passed in 1941, the amount was paid in that year and it was to the interest account of the assessee for that year that it was debited. The whole of the amount was claimed as a deduction in the Income-tax assessment for 1942-43 and the whole claim was allowed.;