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TMI Blog1981 (8) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... in such undertaking computed in the prescribed manner. The computation of the capital for the purposes of this section was provided for by r. 19 of the I. T. Rules, 1962. This rule has six subclauses but for our purposes it is sufficient if the first sub-clause is set out. Rule 19(1) at the relevant time reads as follows: " Computation of capital employed in an industrial undertaking or hotel.-(1) For the purposes of section 84, the capital employed in an undertaking or a hotel to which the said section applies shall be taken to be (a) in the case of assets acquired by purchase and entitled to depreciation (i) if they have been acquired before the computation period, their written down value on the commencing date of the said period; (ii) if they have been acquired on or after the commencing date of the computation period, their average cost during the said period ; (b) in the case of assets acquired by purchase and not entitled to depreciation (i) if they have been acquired before the computation period, their actual cost to the assessee ; (ii) if they have been acquired on or after the commencing date of the computation period, their average cost during the said perio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of the assets under r. 19 and that a mistake had been committed in the original assessment by including as part of the assets the debt of Rs. 18,25,606 due to the assessee-company. The average of the two figures mentioned above was Rs. 14,20,998 and it is this figure that the ITO substituted for the figure of Rs. 18,25,606 taken into account earlier. On appeal, the AAC was of the opinion that on a proper interpretation of r. 19 the correct figure of sundry debtors, loans and advances to be taken into account for computing the capital was Rs. 18,41,606 as originally taken and that the revision in this regard of the original assessment was not called for. The department filed an appeal to the Appellate Tribunal. There was a confusion on the part of the department regarding the point on which the appeal was to be preferred but we are not concerned with the same in this reference as the Tribunal permitted the department to amend the grounds of appeal and raise the contention regarding the point presently in issue by way of a fresh ground. But on the merits the Tribunal decided against the department. It observed: " The Appellate Assistant Commissioner of Income-tax has direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod, its value should be taken not at its value when it became an asset of the business but at an average value to be arrived at in the same manner as the average cost was arrived at under sub-r. (5) for assets covered by cls. (a) and (b). So far as the assets referred to in cls. (a) and (b) are concerned, the same effect has already been achieved by their respective language, for, sub-cl. (ii) of each of these clauses lays down that in the case of assets, whether entitled to depreciation or not, acquired by purchase during the computation period, the value should be taken at the average cost worked out in accordance with sub-r. (6). There is, therefore, neither necessity nor justification for construing the proviso at the end of the subrule as applicable to cls. (a) and (b). This should be a sufficient answer to the department's contention, for, having regard to the rule as it stands, the proviso should be construed either as attaching to all the cls. (a) to (d) or only to cl. (d). Since, for the reasons above-mentioned, the proviso can have no reference to cls. (a) and (b) it follows that it can have no reference to cl. (c) either. The above consideration apart, we think, that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be taken in the manner outlined in sub-r. (6). This construction will involve reading so many words into the rule which do not find a place there. The Legislature was fully conscious of a distinction between assets acquired prior to and those acquired after the commencement of the accounting period. It has divided assets into four categories: (a) acquired by purchase and entitled to depreciation ; (b) acquired by purchase and not entitled to depreciation; (c) debts due to the assessee ; and (d) any other assets. Having done this, it has specifically stated in regard to three of the categories, that an averaging is called for but it has specifically refrained from saying any such thing in regard to cl. (c). If the Legislature had intended that all the categories including debts should also be averaged, it would have cast all the four clauses on the same pattern, either all of them would have contained two sub-cls. (i) and (ii) as in cls. (a) and (b) or all of them would have been general, like cl. (c), with the proviso covering all of them. The proviso could have become necessary in cl. (d) only because the averaging rule applying to cls. (a) and (b) was not to be applicable to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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