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Issues Involved:
1. Whether the Tribunal was justified in excluding Rs. 46,200 from the sum computed by the Income-tax Officer as available for distribution to the shareholders by Dutt Estates Limited. Issue-wise Detailed Analysis: Issue 1: Justification of Excluding Rs. 46,200 from Computation The primary question referred to the court was whether the Tribunal was justified in excluding Rs. 46,200 from the sum computed by the Income-tax Officer as available for distribution to the shareholders by Dutt Estates Limited. Facts: - The assessee was one of the three sons of Raghunath Dutt, deceased. - Dutt Estates Limited was formed in 1930 to take over the properties of the deceased. - The assessee and his wife held 1/3rd of the issued share capital of 210 shares. - Disputes among the brothers led to an arbitration award by Das J., resulting in the transfer of various immovable properties to the shareholders, including the assessee. - The valuation of each lot of property transferred was fixed at Rs. 2,34,473-5-4. - The company's balance-sheet as of 31st March 1948 showed a total valuation of properties exceeding Rs. 22,00,000, with a loss on distribution of assets amounting to Rs. 15,46,688-7-3. Income-tax Officer's Computation: - The Income-tax Officer considered the transaction as a distribution of assets under section 2(6A) of the Indian Income-tax Act. - The company's profit and loss account as of 31st March 1947 disclosed a credit of Rs. 2,52,939-6-3. - After adjustments, the undistributed profit came to Rs. 1,87,944-6-3. - The Income-tax Officer added Rs. 46,200 (depreciation fund) and Rs. 8,652 (reserve for bad debts) to the profits. Tribunal's Decision: - The Tribunal held that the "reserve for bad debts" was profits in the hands of the company and could be treated as a dividend but disagreed with the inclusion of Rs. 46,200 (depreciation fund). - The Tribunal observed that depreciation reserve is not a reserve on which dividend could be paid and was merely a reserve created against the depreciation of the property. Court's Analysis: - The court referred to Palmer's Company Law, which defines "divisible profits" as the profits legally permissible for distribution to shareholders. - The court noted that a depreciation fund created out of profits means a portion of the profit was set apart to augment that fund. - The court emphasized that the balance-sheet showed the existence of a depreciation fund created out of capital, thus the Tribunal was wrong in deleting the sum of Rs. 46,200 from the accumulated profits. - The court also referred to various judgments and principles, including the judgment of Lord President Clyde in Edward Collins & Sons Ltd. v. Commissioners of Inland Revenue and Lawrence L.J. in Naval Colliery Co. Ltd. v. Inland Revenue Commissioners, which supported the view that reserves set aside for depreciation should be considered part of the profits. Conclusion: - The court held that the Tribunal was not justified in excluding Rs. 46,200 from the computation of profits available for distribution. - The question referred to the court was answered in the negative, meaning the Tribunal's decision to exclude the Rs. 46,200 was overturned. - The assessee was ordered to pay the costs of the reference. Separate Judgment: - Ray J. concurred with the judgment delivered. Final Decision: - Question answered in the negative.
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