Contingent share-allotment liability is not a debt for capital computation under section 80J

A liability to satisfy the purchase price of plant and machinery by allotting equity shares did not amount to a debt for capital computation under section 80J. The obligation remained contingent until the shares were actually allotted, and a contingent liability was neither a debt in praesenti nor a debt in futuro. As a result, the share-allotment obligation could not be included in the capital base for section 80J purposes, and the revenue's challenge failed.

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Issues: Whether a liability to issue equity shares in satisfaction of the purchase price of plant and machinery constituted a debt for computing capital under section 80J of the Income-tax Act, 1961.

Analysis: The obligation under the agreement was to discharge the purchase price by allotting equity shares of equivalent value to the supplier. Such liability was contingent upon the shares not being allotted and, until that contingency occurred, it did not amount to a present or future debt. A contingent liability is not a debt in praesenti or in futuro, and therefore could not be included in the computation of capital under section 80J.

Conclusion: The liability was not a debt and was not includible in the capital computation under section 80J, in favour of the assessee.

Final Conclusion: The revenue appeals failed and were dismissed because the share-allotment obligation did not create a debt for capital computation purposes.

Ratio Decidendi: A liability contingent on the occurrence of a future event does not constitute a debt for the purpose of capital computation under the Income-tax Act.

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