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TMI Blog1985 (6) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... he said Schedule shall be diminished by the cost of the assets as on the first day of the previous year owned by it, the income from which, in accordance with clause (iii) or clause (vi) or clause (viii) of rule 1 of the First Schedule to the Act, is required to be excluded from its total income in computing its chargeable profit, even though the assets in question did not yield any income during the previous year and, consequently, there was no question of excluding such income from the total income of the company in arriving at the chargeable profits. The facts relating to this issue are briefly as under. 2. The appellant computed its capital under the Second Schedule at Rs, 4,69,99,606 and claimed standard deduction at 15 per cent ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits under rule 1 of the First Schedule. He held that the capital shall have to be reduced by the cost of the assets in question whether there was any income or not from those assets as rule 1 of the First Schedule required the exclusion of such income in the computation of the chargeable profits. 3. On appeal, the Commissioner (Appeals) agreed with the ITO. He did not agree with the submission of the appellant that for the exclusion of the cost of the assets in question from the capital, the assets should have yielded some income which was actually excluded in the computation of the chargeable profits. He was of the opinion that the mere existence of such assets was sufficient to attract rule 2 of the Second Schedule. Moreover, he als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the assets in question yielded any income or otherwise requiring exclusion of the same in computation of the chargeable profits under clauses (iii), (vi) or (viii) of rule 1 of the First Schedule. Our attention was invited to the judgment of the Madras High Court in Addl. CIT v. Madras Motor General Insurance Co. Ltd. [1979] 117 ITR 354 supporting this proposition. Alternatively he submitted that, in any event, the cost of the assets shall not include the value of debentures in Industrial Credit and Investment Corporation of India of the extent of Rs. 4,61,500 as they do not partake of the character of the assets referred to in clause (iii) or (vi) or (viii) of rule 1 of the First Schedule. 5. The learned departmental representa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets in question is not at all dependent upon the yield or absence of yield of income from such assets. The operative part of the rule is as under : " 2. Where a company owns any assets the income from which in accordance with clause (iii) or clause (vi) or clause (viii) of rule 1 of the First Schedule, is required to be excluded from its total income in computing its chargeable profits, the amount of its capital as computed under rule 1 of this Schedule shall be diminished by the cost to it of the said assets " 7. A reference to rule 1 of the First Schedule is also quite revealing in this context. The said rule is as under : " 1. Income, profits and gains and other sums failing within the following clauses shall be excluded from s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Breweries Ltd. After considering the salient aspects, their Lordships have laid down as under : " ....What rule 2 of the Second Schedule says is that where a company owns any assets the income from which in accordance with clause (iii) or clause (vi) or clause (viii) of rule 1 of the First Schedule, is required to be excluded from its total income in computing its chargeable profits, the amount of its capital as computed under rule 1 shall be diminished from the cost of the assessee of the said assets. It does not say that the application of rule 2 is dependent upon the circumstance that the assets in question in fact earned income by way of dividend during the relevant year. The word 'income' in the words 'any assets the income from whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be excluded under rule 1(viii) of the First Schedule for purposes of rule 2 of the Second Schedule. We are of the opinion that under rule 2 of the Second Schedule of the Act, the sum of Rs. 26,33,201 representing the cost of the shares in Indian companies to the assessee from which the assessee received no dividends should be excluded from the capital as computed under rule 1 of the Second Schedule of the Act, that is, the capital as computed under rule 1 of the Second Schedule should be diminished by the said sum of Rs. 26,33,201. The liability of the assessee should be computed on that basis. The question referred is answered accordingly. " (p. 904) The Calcutta High Court in Nav Bharat Vanijya Ltd.'s case has come to a similar findin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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