Unpaid machinery purchase price is not borrowed capital where no lender-borrower relationship exists for surtax computation.

Outstanding unpaid purchase consideration for machinery, even when supported by a bank guarantee and instalment interest, remained unpaid sale price and did not amount to monies borrowed. A borrowing requires a real lender-borrower relationship and acceptance of funds as a loan, which was absent where the arrangement only deferred payment of the machinery price. The proviso to Rule 1(v) was also inapplicable because no borrowing preceded the acquisition of the capital asset. The unpaid amount therefore could not be treated as borrowed capital for inclusion in the surtax capital base.

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Issues: Whether the outstanding unpaid purchase consideration for machinery, supported by a bank guarantee, constituted monies borrowed so as to be included in the capital base for surtax purposes.

Analysis: The payment arrangement under the agreement was only for instalment payment of the price of machinery purchased from the foreign supplier. The unpaid amount remained unpaid purchase money and did not arise from any act of borrowing. A borrowing requires a real lending and a real acceptance of money as a loan, together with a borrower-lender relationship, which was absent here. The existence of a bank guarantee and stipulation for interest on instalments did not transform the character of the debt from unpaid sale consideration into borrowed capital. The proviso to Rule 1(v) also did not assist the assessee, because it contemplates borrowing for the creation of a capital asset and repayment over not less than seven years, whereas no borrowing preceded the acquisition of the machinery.

Conclusion: The amount of Rs. 7,43,750 did not constitute monies borrowed and could not be included in the capital base for surtax assessment.

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