TMI Blog2008 (9) TMI 435X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 1922 u/s. 2(6A)(e). Therefore, even the decisions rendered under the old Act are relevant. It is further clear in the decision of Hon'ble Supreme Court in the case of P.K. Badiani vs. CIT [ 1976 (9) TMI 3 - SUPREME COURT] the expression accumulated profits occurring in cl. (e) of s. 2(6A) would mean profits in the commercial sense. We observed that, for determining the commercial profits, what is required to be considered is whether depreciation charge is to be reduced or not. In our view, depreciation is definitely charged on the assets of the company in the sense that it represents wear and tear of various assets which are used for the purpose of business. Such wear and tear leads to the reduction in the values of assets and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icable to the facts and circumstances of the present case. In P.K. Badiani vs. CIT 1976 CTR (SC) 466 : (1976) 105 ITR 642 (SC), the Hon'ble apex Court held that the expression accumulated profits occurring in s. 2(22)(e) for that matter in any clause, means profits in commercial sense and not assessable or taxable profits liable to tax as income under the 1922 Act . Also in Hari Prasad Jayantilal Co. vs. V.S. Gupta. ITO (1966) 59 ITR 794 (SC). the Hon'ble apex Court observed that the word 'dividend' means dividend as ordinarily understood under the Companies Act, and also the head of payment or distribution specified therein . Hence, the accumulated profit should also be calculated based on the depreciation as per Compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7) 61 ITD 485 (Mad) where again it was held that accumulated profit would mean only commercial profit. 5. On the other hand, the learned counsel for the assessee while supporting the appellate order submitted that depreciation has to be allowed while calculating the accumulated profits and in this regard, he relied on the following judgments: (1) G.R. Govindarajulu Naidu Anr. vs. CIT (1973} 90 ITR 13 (Mad); (2) CIT vs. Jamnadas Khimji Kothari (1973) 92 ITR 105 (Bom); (3) Navnitlal C. Jhaveri vs. CIT (1971) 80 ITR 582 (Bom). 6. We have considered rival submissions carefully in the light of available material on record as well as decisions cited by the parties. Admittedly, the provisions of s. 2(22)(e) are similar to the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulating the accumulated profits for determining the deemed dividend. However, this position seems to have been overruled by the Hon'ble Supreme Court in the case of P.K. Badiani vs. CIT. However, before us, the question is not of reduction of initial depreciation. But question is whether depreciation should be allowed to be reduced from commercial profits to determine accumulated profits for the purpose of s. 2(22)(e). Hon'ble Bombay High Court in the case of Navnitlal C. Jhaveri vs. CIT has very clearly held as under: For the purpose of calculating profits within the meaning of the phrase 'accumulated profits' under s. 2(6A)(e), an allowance for depreciation should be made by way of a deduction at the rates provided for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ' Hand Book, Third Edition, it is an out-of-pocket cost as any other costs. Says the learned author in the above book, at p. 746, thus: There is still widespread misapprehension as to the precise significance of the depreciation charge. It is often deemed a more or less imaginary and hypothetical element, and is sharply contrasted with the regular 'out-of-pocket' operating costs. As a matter of fact there is nothing at all imaginary about depreciation as a cost of business operation and at bottom it is just as much an out-of-pocket cost as any other. The depreciation charge is merely the periodic operating aspect of fixed asset costs, and there is no doubt as to the reality of such costs. Far from being a non-out-of-pocket ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the Hon'ble Gujarat High Court in the case of CIT vs. Viramgam Mills Co. Ltd. (1961) 43 ITR 270 (Guj) that depreciation is a normal charge. As we observed above, for determining the commercial profits, what is required to be considered is whether depreciation charge is to be reduced or not. In our view, depreciation is definitely charged on the assets of the company in the sense that it represents wear and tear of various assets which are used for the purpose of business. Such wear and tear leads to the reduction in the values of assets and after useful life of such assets, the same are required to be replaced. Depreciation is thus recognised under Companies Act as well as IT Act as a charge towards profits. Since IT Act has presc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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