Share-linked consideration is not a debt, while actuarial gratuity provisions remain deductible as known liabilities.

Amounts payable solely in consideration of share allotment are not treated as borrowed money or a debt for capital-computation purposes under section 80J, because the company's obligation is to complete the share issue rather than repay cash. A provision for future gratuity based on actuarial valuation is deductible where it represents the discounted present value of an existing and reasonably ascertainable liability, even if payment falls due later. On these principles, the share-linked plant and machinery balance was excluded from debt treatment, while the actuarially computed gratuity provision was allowable as a deduction.

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Issues: (i) Whether the outstanding amount payable for plant and machinery, agreed to be satisfied by issue of shares, was a debt liable to be excluded in computing capital for relief under section 80J. (ii) Whether the provision made on actuarial valuation towards future gratuity liability was allowable as a deduction in the relevant assessment year.

Issue (i): Whether the outstanding amount payable for plant and machinery, agreed to be satisfied by issue of shares, was a debt liable to be excluded in computing capital for relief under section 80J.

Analysis: The bargain between the parties was that the consideration for the plant and machinery would be discharged by allotment of equity shares and not by cash payment. Until shares were allotted, the company's obligation remained one to complete the share allotment, not to repay a monetary debt. An amount received or payable for the specific purpose of share allotment does not become borrowed money or a debt merely because allotment is delayed. On that reasoning, the outstanding sum could not be treated as a debt owed by the assessee-company within the computation rule governing capital.

Conclusion: The issue was answered against the Revenue and in favour of the assessee.

Issue (ii): Whether the provision made on actuarial valuation towards future gratuity liability was allowable as a deduction in the relevant assessment year.

Analysis: A gratuity provision made on a scientific or actuarial basis represents the discounted present value of a known and existing liability, even though actual payment may arise in the future. Where the liability is properly ascertainable on such basis, it is a deductible charge in computing profits, and the fact that the payment falls in later years does not defeat deduction. The provision in the accounts was found to be based on actuarial calculation of the future gratuity obligation and therefore answered the legal test for allowance.

Conclusion: The issue was answered against the Revenue and in favour of the assessee.

Final Conclusion: The reference was disposed of by holding that the outstanding share-linked plant consideration was not a deductible debt, while the actuarially computed gratuity provision was an allowable deduction; on the questions referred, the assessee succeeded overall.

Ratio Decidendi: Amounts payable solely in consideration of share allotment are not debts owed for capital-computation purposes, and a gratuity provision based on actuarial valuation of discounted present value is deductible as a known liability.

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