Law:

Section:

Rule 5 to Schedule I of the Excess Profits-Tax Act, 1940 - Profits - Computation of - Whether what is to be compared is state of loan account in accounting period with state of loan account in standard period and not a comparison of state of loan account in accounting period with actual loan existing on last day of standard period - Held, yes - Whether while applying rule 5 of Schedule I what is to be compared is bank loans existing during accounting period and those existing during standard period and only way that can be done is to strike an average of loans during both periods - Held, yes - Whether therefore, there is no justification for view that average loan during accounting period is to be compared with actual loan existing on very last day of standard period - Held, yes FACTS The assessee-company was acting as agents for joint stock companies. While ascertaining the capital employed in the business, the Tribunal held that the proper way of applying Rule 5 of the Schedule I was to strike an average of the loans during the standard period and an average of the loan during the chargeable accounting period. The average during the standard period was very much higher than the average during the standard period and the Tribunal accordingly held that there had been an increase in the capital of the assessee as envisaged by Rule 5 of Schedule I and the assessee was, therefore, entitled to the relief given by that rule. On reference: HELD There is nothing in Rule 5 which compels the Court to hold that the actual amount of the loan on the last day of the standard period only can be taken into account. It seemed that the words 'If at any time after the close of the standard period, any increase in the capital employed in a business has been effected by means of a loan from a bank' mean that if at any time after the expiry of the standard period the capital has been increased by loans from the bank then the rule will apply. That however does not mean that if there has been after the expiry of the standard period any increase over and above the loans existing at the last day of the standard period the rule applies. What is being compared is the state of the loan…

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