Law:

Section:

Section 104 of the Income-tax Act, 1961 (Corresponding to section 23A of the Indian Income-tax Act, 1922) - Additional income-tax on undistributed profits of certain companies - Assessment year 1952-53 - Whether in order that proviso to section 23A(1) of 1922 Act may apply, it is necessary that reserve shown in balance sheet must represent accumulations of past profits - Held, yes - Whether where there was no evidence to show that amount under 'Depreciation Fund' was built up out of any profit, same could not be included for purpose of section 23A(1) - Held, yes FACTS The assessee-company was one in which at the relevant time the public were not substantially interested as envisaged under section 23A of 1922 Act. The balance-sheet of the company for the accounting showed the paid up capital of the company as Rs. 6,98,000. On the liabilities side of the balance-sheet there were the "Buildings and Machinery Depreciation Fund" amounting to Rs. 6,24,948, the "Reserve Fund" amounting to Rs. 2,20,000 and the "Income-tax Fund in excess of requirement" amounting to Rs. 93,387, making in all Rs. 9,38,335. The sum of Rs. 6,24,948 under the heading "Buildings and Machinery Depreciation Fund" had been carried forward from year to year in the balance-sheets of the company from the year 1946 onwards. In 1946, the assessee-company had sold its buildings and machinery and realised a sum of Rs. 4,00,000 for its buildings and Rs. 21,99,038 for its machinery. It thus realised in all a sum of Rs. 25,99,038. The original cost of these buildings was Rs. 3,15,264, and that of the machinery was Rs. 10,44,491 making in all Rs. 13,59,755. The sum of Rs. 6,24,948 was made up of various amounts shown in the Buildings and Machinery Depreciation Fund year after year up to and inclusive of the calendar year 1945. In the balance-sheet as on 31-12-1945, the original cost of Rs. 13,59,755 was shown on the "Assets side" and the provision of Rs. 6,24,948 was shown on the "Liabilities side" under the head "Buildings and Machinery Depreciation Fund". For the assessment year 1952-53 the company's return showed an income of Rs. 81,860. It was assessed on an income of Rs. 81,935 and the tax thereon…

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