Law:

Section:

Section 104, read with section 43(1) of the Income-tax Act, 1961 [Corresponding to section 23A(1) read with section 10(5)) of the Indian Income-tax Act, 1922] - Additional Income-tax on undistributed profits of certain companies - Assessee-company declared dividend to extent of 62 per cent of distributable profits - However, ITO found that accumulated past profits of assessee-company exceeded its paid up capital and paid up capital exceeded actual cost of fixed assets - Actual cost of assets was worked out on difference between original cost and depreciation written off - ITO taking view that provisions of section 23A(1) of 1922 Act were applicable to assessee, held that no rebate was to be allowed on undistributed profits of company - Tribunal, however, opined that actual cost of fixed assets corresponded to original cost and not figure arrived at after deducting depreciation from said original cost - It further held that reserves did not include provisions for depreciation - Accordingly, Tribunal concluded that provisions of section 23A(1) of 1922 Act did not apply to assessee-company and therefore, it was entitled to rebate on undistributed balance of profits - Whether expression 'actual cost' as occurred in section 10(5) of 1922 Act means cost at which assessee acquired asset, namely original cost - Held, yes - Whether, moreover, in view of provisions of section 211 of Indian Companies Act, depreciation was not to be included in any reserves - Held, yes - Whether, consequently, assessee was entitled to rebate on undistributed balance of profits under clause (i) of proviso to item (b) of Part I of Schedule to Finance Act, 1955 - Held, yes FACTS The assessee, a limited company declared the dividend to the extent of sixty two per cent of the distributable profits. The public were not substantially interested in the assessee. The ITO found that the accumulated past profits exceeded the paid-up capital and the paid up capital exceeded the actual cost of the fixed assets. The actual cost of the assets was worked out on the difference between the original cost and the depreciation written off. In computing the taxes payable no rebate was allowed, under the Finance…

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