Debentures issued as collateral security were includible in capital computation under the surtax rule's broad wording.

Under rule 1(iv) of the Second Schedule to the Companies (Profits) Surtax Act, 1964, a company's debentures were includible in capital computation where the provision then in force used the broad phrase "its debentures, if any" and did not confine inclusion to debentures issued for cash or to any particular mode of issue. Debentures issued as collateral security for a bank loan were treated as debentures actually issued by the company and used in its financing structure, so they formed part of capital for surtax purposes. The later amendment adding the words "issued by it to the public" was not applied to the earlier assessment year.

---

---

Issues: Whether debentures issued without receipt of cash, as collateral security for a bank loan, were includible in the company's capital under rule 1(iv) of the Second Schedule to the Companies (Profits) Surtax Act, 1964.

Analysis: The relevant provision at the material time used the broad expression "its debentures, if any", and did not restrict inclusion to debentures issued for actual cash consideration or to any particular mode of issue. The debentures in question were in fact issued by the company and utilised in connection with its borrowing arrangements. The later amendment introducing the words "issued by it to the public" was not treated as governing the earlier assessment year. The facts were distinguished from cases dealing with bonus shares and capital reserve, because here the company had issued debentures as part of its financing structure.

Conclusion: The debentures were includible in the computation of capital under rule 1(iv), and the question was answered in the affirmative, in favour of the assessee.

Final Conclusion: The reference was answered by holding that the assessee was entitled to include the debentures in its capital computation for surtax purposes.

Ratio Decidendi: Where the governing provision simply refers to a company's debentures without qualifying the manner of issue, debentures actually issued by the company are includible in capital computation notwithstanding that they were issued as collateral security and not against direct cash receipt.

---