TMI Blog1976 (11) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... dian concern' ?" The matter relates to a non-resident company incorporated in England. It is engaged in the business of manufacture of tea and owns tea estates in India. The accounting period for the purpose of assessment to super profits tax for the assessment year 1963-64 is the year ended June 30, 1962. The capital of the company for the purpose of the assessment was calculated on the basis of the balance-sheet of the company as at June 30, 1962. The Income-tax Officer, by his order dated June 30, 1964, made assessment to super profits tax for the assessment year 1963-64. In the course of the assessment, he computed the capital for the purpose of allowing the standard deduction at Rs. 64,02,274. While so computing the capital, the Income-tax Officer had taken into account the replanting, building and machinery reserves of Rs. 8,00,000 as part of the capital. The Commissioner of Income-tax considered that the order of the Income-tax Officer so computing the capital within the meaning of rule 1 of the Second Schedule to the Super Profits Tax Act, 1963, hereinafter referred to as "the Act", was prejudicial to the interest of the revenue and, therefore, passed an order on June ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of the Income-tax Officer's assessment and he had dismissed the appeal solely on the ground that the question was concluded by the order of the Commissioner, the Tribunal by its order dated July 17, 1969, called for a remand report from the Appellate Assistant Commissioner. The Appellate Assistant Commissioner sent his remand report dated October 7, 1969. After considering the remand report of the Appellate Assistant Commissioner, the Tribunal finally disposed of the appeals by its order dated March 12, 1970, which has given rise to the two questions referred to already. As far as the sum of Rs. 8,00,000 is concerned, the Tribunal held that it squarely fell within the scope of the reserve as contemplated in rule 1 of the Second Schedule to the Act and that, therefore, the Income-tax Officer as well as the Commissioner were in error in excluding it from the computation of the capital. With regard to the second question, the Tribunal held that the interest paid by the Mercantile Bank Ltd. to the assessee had to be excluded from the profits as computed under the Income-tax Act, in view of rule 1 (x) of the First Schedule to the Act. It is the correctness of these two conclusions th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidering this question, it is necessary to refer to what the Commissioner of Income-tax stated in the first instance and what the Appellate Assistant Commissioner of Income-tax in his remand report stated. In the order of the Commissioner of Income-tax, he pointed out : "The assessee's argument is that these items are not earmarked for any specific purpose but kept credited in the accounts as and when funds permitted and that these are for all practical purposes synonymous with general reserves ......... In so far as the reserve for building, machinery, etc., is concerned, the accounts of the company show that the depreciation claimed year after year has not been deducted from the value of the buildings or machinery which continue to be shown at the original value. Hence, to the extent that this account represents the depreciation admissible as a deduction, it cannot be regarded as a reserve for the Purpose of computing capital in view of the provision in rule 1 of the Second Schedule of the Super Profits Tax Act to the effect that reserves have to be taken into account only in so far as the amounts credited to them have not been allowed in computing the business profits." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Second Schedule, it is clear that the reserve is includible for the computation of the capital so long as the amounts credited to it have not been allowed in computing its profits for the purpose of Indian Income-tax Act, 1922, or the Income-tax Act, 1961. It is not the case of the department that the reserve of Rs. 8,00,000 included any amount which had been allowed in computing the profits for the purpose of the Income-tax Act, 1961. The only argument which the Commissioner of Income-tax himself has put forward in this context is that year after year depreciation had been allowed in respect of machinery and such depreciation was not actually adjusted against the value of the machinery and the value of the machinery continued to be shown at their original value. However, in our opinion, as the Appellate Assistant Commissioner has rightly pointed out, though depreciation to the extent of Rs. 9,02,384 had been allowed over a period of ten years from 1953-54 assessment onwards, still no part of it had been credited to the reserve account. Consequently, within the terms of the statutory provision contained in rule 1 of the Second Schedule, since the reserve of Rs. 8,00,000 did not con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was the reason why exemption had to be granted in respect of the interest in question. However, we are of the opinion that this reasoning of the Tribunal, based on the analogy of the provisions contained in the Income-tax Act, is not relevant for deciding the question in issue, which has to be decided solely on the basis of the statutory provision extracted already. As a matter of fact, the reasoning of the Tribunal will lead to an anomalous situation, namely, such an amount will not be included in computing the total income of the previous year of the assessee under the provisions of the Income-tax Act, 1961, for assessment thereunder, but also will be excluded from the total income so computed, under the provisions of clause (x) of rule 1 of the First Schedule to the Act, amounting to a double benefit. The first aspect that has to be considered in this behalf is that the expression "Indian concern" has been used along with the expression "Government or a local authority." Consequently, the "Indian concern" must partake the nature of Government or a local authority, at least with reference to the Indian character of it. Secondly, the expression used in the statutory provision ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
