Sen, J. - (1.) This reference arises out of the assessment of M/s. Braith-waite & Co. (India) Ltd., a public limited company, within the meaning of the Companies Act, 1956, for the assessment year 1965-66. The facts found as appearing from the statement of the case and the annexures thereto are as follows : On the 2nd May, 1964, the Companies (Profits) Surtax Act, 1964, received the assent of the President and came into force while the corresponding earlier Act, namely, the Super Profits Tax Act, 1963, ceased to be in operation. On the 15th May, 1964, the recommendations of the directors for the ensuing annual general meeting of the assessee was finalised. The statement of the chairman of the assessee to the members was recorded as follows: "The profit for the year after providing Rs. 14,19,333 for depreciation and transferring Rs. 7,03,186 to development rebate reserve, amounted to Rs. 1,24,47,705 which shows an increase of approximately Rs. 18 lakhs over the previous year. This result is most encouraging but once again very large sums are required for payment of taxes as, in addition to income and super taxes amounting to Rs. 62,20,706, Rs. 17 lakhs has been provided for payment of surtax, making a total of Rs. 79,20,706 or more than 63% of the profit. It is interesting to note that this provision for payment of surtax is very nearly the same as that for super-tax in the previous year but is, of course, calculated on the increased profit referred to above."
(2.) The 34th annual general meeting of the assessee was held on the 18th June, 1964, and the recommendations of the directors as contained in the above statement of the chairman were accepted. In the balance-sheet for the year ending 31st December, 1963, Rs. 17,00,000 was shown under the head "Reserve and Surplus" as reserve for surtax appropriation during the year.
(3.) On the 1st August, 1964, the assessee entered into an agreement in writing with the National & Grindlays Bank Ltd., whereunder the assessee obtained a "term loan" of Rs. 50,00,000. The agreement provided for repayment of the said loan in instalments as follows : JUDGEMENT_825_ITR111_1978Html1.htm;