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TMI Blog1985 (6) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... which, in accordance with cl. (iii) or cl. (vi) or cl. (viii) of r. 1 of the First Schedule is required to be excluded from its total income in computing its chargeable profit, even though the assets in question did not yiedl any income during the previous year and consequently, there was no question eccluding 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 thereof, namely, Rs. 70.49,941. The investment of the company consisting of debentures, Government securities and shares of subsidiary companies were of the value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the First Schedule required the exclusion of such income in the computation of the chargeable profits. 3. On appeal, the CIT (A) agreed with the ITO. He did not agree with the submission of the appellant, that, for the exclusion of the cost the assets in question from the capital, the assets in question from the capital, the assets should have yielded some income which was actually excluded in the computation of chargeable profits. He was of the opinion, that the mere existence of such assets was sufficient to attract r. 2 of the Second Schedule. Moreover, he also relied on CIT vs. United Breweries Ltd. (1978) 114 ITR 901 (Kar) of the karnataka High Court and Nov Bharat Vanijya Ltd. vs. CIT (1980) 123 ITR (Cal) of the Calcutta High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion was invited to the judgment of the Madras High Court in Addl. CIT vs. Madras Motor General Insurance Co. Ltd. (1979) 117 ITR 354 (Mad) supporting this proposition. Alternatively he submitted, that, in any event, the cost of he assets shall not exclude 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 cl. (vi) or (viii) of r. 1 of the First Schedule. 5. the ld. Departmental Representative relied on the orders of the lower authorities and submitted, that, the decision of the karnataka High Court in CIT vs. United Breveries Ltd. (1978) 114 ITR (Kar) laid down the correct view in this regard. 6. We have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dance with cl. (iii) or cl. (vi) or cl. (viii) of r. 1 of the First Schedule, is required to be excluded form its total income in computing its chargeable profits, the amount of its capital as computed under r. 1 of this schedule, shall be diminished by cost to it of the said assets.' 7. A reference to r. 1 of the First Schedule is also quite revealing in this context. The said rule is as under: "Income, profits and gains and other sums falling within the following clauses shall be excluded from such total income; Cl. (iii): profits and gains of any business of life insurance. Cl. (vi): income chargeable under the IT Act under the head "Interest on securities" derived form any security of the Central Government issued or declare ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cl. (viii) of r. 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 r. 1 shall be diminished from the cost of he assessee of the said assets. It does not say that the application of r. 2 is dependent upon the circumstances 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 form which" in r. 2 should be read as meaning "income, if any" in the context in which it appears. If there is an asset which answers the description or is of the category described in cl. (viii) of r. 1 of the first Schedule, the cost of the said asset to the assessee shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see received no dividends should be excluded from capital as computed under r. 1 of the Second Schedule of the Act, that is, the capital as computed under r. 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". The Calcutta High Court in Nav Bharat Vanijya Ltd. vs. CIT (1980) 123 ITR 865 (Cal) has come to a similar finding. No doubt, the Madras High Court in Addl. CIT. vs. Madras Motors General Insurance Co. Ltd. (1979) 117 ITR 354 (Mad) has taken a different view in this regard. With great respect, we follow the Karnataka and Calcutta High Court's decisions in this respect. Accordingly, we confirm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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