Advance for share allotment is not borrowed capital where no debt repayment obligation exists under surtax rules.

An advance made to a company for allotment of shares is not "monies borrowed" for inclusion in capital under rule 1(v) of Schedule II to the Companies (Profits) Surtax Act, 1964 where there is no corresponding obligation to repay it as a debt. The advances in question were made towards share capital, carried only an obligation to issue shares, and were not borrowed capital or paid-up capital. The subsequent allotment of shares reinforced that the funds were contributed for share subscription rather than as a loan, and the amount was therefore excluded from capital computation.

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Issues: Whether the sum of Rs. 26.5 lakhs advanced by the Government to the assessee for allotment of shares could be treated as monies borrowed within rule 1(v) of Schedule II to the Companies (Profits) Surtax Act, 1964.

Analysis: For inclusion in the capital of a company under rule 1(v), the amount must be a borrowing from the specified source and satisfy the statutory conditions. The sums in question were advanced towards share allotment, carried no obligation of repayment in the nature of a loan, and the company's obligation was only to allot shares. The amounts were therefore neither borrowed capital nor paid-up capital. The subsequent allotment of shares also supported the conclusion that the advances were made towards share capital and not as borrowings.

Conclusion: The sum of Rs. 26.5 lakhs was not monies borrowed within the meaning of rule 1(v) of Schedule II to the Companies (Profits) Surtax Act, 1964, and the finding was against the assessee.

Ratio Decidendi: An advance made to a company towards allotment of shares, without a corresponding obligation to repay as a debt, does not constitute monies borrowed for the purpose of inclusion in capital under rule 1(v) of Schedule II to the Companies (Profits) Surtax Act, 1964.

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