Modified repayment terms took the loan outside the surtax proviso, as later correspondence changed the original agreement.

Subsequent correspondence modified the original repayment arrangement for the loan, extending repayment beyond seven years from the first advance under the agreement. On that factual basis, the loan did not fall within the proviso to rule 1(v) of the Second Schedule to the Companies (Profits) Surtax Act, 1964. The Supreme Court accepted the High Court's reasoning that the later correspondence effected a genuine modification of the agreement, so the proviso was not attracted and the loan remained outside its scope.

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Issues: Whether, on the facts, the proviso to rule 1(v) of the Second Schedule to the Companies (Profits) Surtax Act, 1964 was attracted to the loan in question, and whether subsequent correspondence between the parties amounted to a modification of the original agreement so as to take the loan outside the proviso.

Analysis: The question turned on the effect of later correspondence between the parties. The High Court had held that the correspondence modified the original repayment arrangement, with the result that the loan was repayable over a period extending beyond seven years from the first advance under the relevant agreement. The record did not disclose any infirmity in that reasoning. In those circumstances, the loan could not be treated as falling within the proviso to rule 1(v).

Conclusion: The proviso was not attracted, and the High Court's answer on the reference was correct.

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