COMMISSIONER OF INCOME TAX Vs. HINDUSTAN ANTIBIOTICS LIMITED

JUDGEMENT

(1.) IN this reference two questions stand referred to us by the Tribunal, Bombay Bench 'C '. The reference is under S. 66(1) of the Indian IT Act, 1922:

(2.) IT would appear to us that the answer to be given to question No. 1 is now concluded by our decision given this morning in IT Ref. No. 181 of 1971 [CIT vs. Zenith Steel Pipes Ltd. (1982) 137 ITR 34 (Bom) : TC25R.1136], and in accordance with the observations made therein, the question will have to be answered in the negative and in favour of the Revenue. The view we have taken in the said decision, which will have to be followed, is that the initial depreciation is required to be deducted in determining the written down value of the assets of the company for the purposes of r.

(3.) THE assessment was originally made by the ITO on a total income of Rs. 1,42,16,871. Thereafter certain appeals took place but ultimately the ITO issued a notice under S. 148 of the IT Act. In pursuance of that notice, the assessee filed a return on 18th May, 1965, declaring an income of Rs. 1,39,41,098. On 15th Nov., 1965, a revised return was filed by the assessee showing an income of Rs. 1,42,13,438. At the time of passing the reassessment order the ITO deducted a sum of Rs. 1,59,50,000 from the computation of the capital employed by it in accordance with the Indian IT (Computation of Capital of Industrial Undertakings) Rules, 1949, in respect of relief under S. 15C of the Indian IT Act, 1922. The ITO gave the following reason for so doing. According to the ITO, the company had a sum of Rs. 1,60,00,000 in fixed deposits as on 31st March, 1959, and a sum of Rs. 1,89,00,000 represented the fixed deposits as on 31st March, 1960. The amount of fixed deposits had gone as high as Rs. 2,51,50,000 during the financial year 1959 60 and the total of fixed deposits was never less than Rs. 1,76,00,000 at any time in the year. According to the ITO, it was thus clear that a considerable amount was not required by the company for the purposes of the business. This amount was thus required to be excluded on a proper application of r. 3(5). According to the company, the keeping of these large amounts became necessary as it was accumulating funds to finance the entire cost of the streptomycin and tetracycline plants which were in fact commissioned in the subsequent years. According to the company, this keeping of money in fixed deposits was a peculiar but normal feature of the business of the company. According to the company, the amounts accumulated were kept in fixed deposits in order to earn interest to raise the profit of the company until the funds accumulated could be used for the company's business as contemplated. This contention was rejected by the ITO.