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TMI Blog1965 (4) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee was assessed on a total income of Rs. 10,53,739. The gross income-tax and corporation tax computed on the above was Rs. 4,57,711. There was thus a sum of Rs. 5,96,021 available for distribution to the shareholders. The company declared a dividend to the extent of 62 per cent. of the distributable profit. In computing the taxes payable no rebate was allowed, under the Finance Act of 1955, on the undistributed profits of the company on the footing that although no order under section 23A(1) had actually been passed the provisions of that section were applicable to the company. In denying this rebate, the Income-tax Officer noted that the assessee was a company to which the provisions of section 23A appeared to be applicable and the application of the section was under consideration. The said officer further noted that if section 23A was not eventually applied, the assessee would be entitled to the rebate and he stayed the collection of so much of the amount of tax as would, be equal to the rebate in question. The assessee preferred an appeal to the Appellate Assistant Commissioner. There it was contended that as the company had already declared more than 60 per cent. of the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exclusive of the capital, if any, created out of its profits and gains which have not been the subject of an order under this sub-section, and (ii) any loan capital which is the property of the shareholders or the actual cost of the fixed assets of the company, whichever of these is greater, this section shall apply as if for the words, 'sixty per cent. of the total income ', wherever they occur, the words 'the whole of the total income' had been substituted. " The question in this case is whether the accumulated profits and reserves of the company exceed the actual cost of the fixed assets of the company. The Tribunal noted from the report of the Income-tax Officer that the paid up capital of the assessee-company is Rs. 20,00,000. The total reserves out of the accumulated profits as worked out by the Income-tax Officer are Rs. 37,97,985. The original cost of fixed assets was Rs. 50,99,335 and the amount of depreciation written off was Rs. 36,06,454." According to the Tribunal, " it is necessary to find out whether the reserves representing the accumulations of past profits which have not been the subject of an order under section 23A exceed either the aggregate of (1) the paid- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of section 23A were merely attracted but not applied. It followed the ruling of the Bombay High Court in Commissioner of Income-tax v. Afco Private Ltd. which was affirmed by the Supreme Court of India in Commissioner of Income-tax v. Afco (Private) Ltd. There it was held that the expression cannot be made applicable " meant that the applicability of section 23A depended upon an order to be made by the Income-tax Officer and not upon any exclusion by the provisions of the Act. It was observed that "satisfaction of the Income-tax Officer as to the existence of several conditions prescribed thereby even if the company is one which does not fall within sub-section (9) of section 23A is a condition of making of the order. The language used by the legislature clearly indicates that it is only when an order under section 23A will not, having regard to the circumstances, be justified that the right to obtain rebate under the Finance Act (15 of 1955) is claimable." The whole question revolves upon the meaning of the expression to actual cost. Does it mean the " original cost " or the " original cost less depreciation "? Again if actual cost is to be computed as original cost less d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to him under this Act or under any Act.... (b) in the case of assets acquired before the previous year the actual cost to the assessee less all depreciation actually allowed to him under this Act or any Act repealed thereby........" Broadly speaking the expression " actual cost to the assessee " means the amount in fact paid by the assessee subject to certain exceptions. Ignoring the proviso to section 12B(2) the. expression " actual cost to the assessee " would seem to indicate the amount actually paid by the assessee. The second proviso however reads : " Provided further that where the capital asset is an asset in respect of which the assessee has obtained depreciation allowance in any year, the actual cost of the asset to the assessee shall be its written down value, as defined in section 10, increased or diminished, as the case may be, by any adjustment made under clause (vii) of sub-section (2) of that section." It would therefore appear that in using the expression " actual cost to the assessee " the legislature wanted to indicate the sum of money or money's worth which it cost the assessee to acquire the asset. In special cases however the legislature indicated that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ude any amount written off or retained by way of providing for depreciation, renewals or diminution in value of assets or retained by way of providing for any known liability. It would therefore appear that a provision for depreciation was not to be included in any reserves. We find a similar provision in Schedule VIII, Part IV, of the English Companies Act of 1948. Clause 27(1)(b) gives the same interpretation of " reserve " as is to be found in our Companies Act. Mr. Pal drew our attention to the case of Commissioner of Income-tax v. Bibhuti Bhusan Dutt, where a portion of the profits of a company was set apart for meeting depreciation of the fixed assets and this depreciation fund was added to year after year and was shown as a reserve in the balance-sheet. There it was held that it formed part of the accumulated profits for the purpose of section 2(6A) of the Income-tax Act. It was said in that case that the assessee might not have created a reserve fund in respect of the depreciation but having done so, it was bound by its own act. If the company is not obliged to show depreciation in its balance-sheet by way of reserves and indeed ought not to do so under the form prescribed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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