Case: Commissioner of Income Tax Vs. Lucas T. V. S. Limited

The order of the Tribunal states that clause 4(ii) of the agreement dated November 27, 1962, between Lucas, the English company, and the respondent would show that the purchase price of the plant and machinery, which had been advanced to the respondent by Lucas (England), would be satisfied with the issue by the respondent to Lucas (England) of its equity shares at par of an equivalent value. The question that arose, therefore, was whether the said agreement had created any debt towards the supply of plant and machinery by Lucas (England). The Tribunal too the view that the obligation of the respondent in respect of the price of the plant and machinery had to be satisfied by the issue of the respondents shares to Lucas (England). The view of the Tribunal was upheld by the High Court and the Revenue is in appeal.

Court's reasoning:
What is relevant for our purpose is that a liability depending upon a contingency is not a debt in praesenti or in futuro till the contingency has happened. In the present case, the liability of the respondent to Lucas (England) is to issue to Lucas (England) equity shares of a value equivalent to the amount advanced by Lucas (England) for the plant and machinery. It is only if, for any reason, the shares cannot be allotted that the question of compensating Lucas (England) in cash might arise. We do not think that, in these circumstances, it can be said that there was a debt owed by the respondent to Lucas (England) to be taken into account for the purposes of computing the capital under section 80J.