LAWS(BOM)-1972-10-1

COMMISSIONER OF INCOME TAX Vs. JAMNADAS KHIMJI KOTHARI

Decided On October 03, 1972
COMMISSIONER OF INCOME TAX Appellant
V/S
JAMNADAS KHIMJI KOTHARI Respondents

JUDGEMENT

(1.) IN this reference under S. 66(1) of the Indian INCOME TAX ACT, 1922, the two questions of law referred to us read as under :

(2.) THE facts which require to be noticed are as follows :

(3.) THE case of the assessee before the AAC and the Tribunal was that the above sum was not "loan" or "advance" within the meaning of S. 12(1B). The reason was that the debit balance was the result of transaction in a mutual, open and current account. On the question of accumulated profits his submission was that a sum of Rs. 1,35,330, which was received as compensation for the damage resulting from the dock explosion of 1944, was carried to reserve fund. This part of the reserve fund was capital asset and could never be included in the accumulated profits. His further submission was that the depreciation as mentioned in the balance -sheet was not calculated at the rates admissible under the IT Act. In arriving at the accumulated profits as mentioned in S. 12(1B) the depreciation as calculated and mentioned in the balance sheet was not binding. The depreciation that was allowed to the assessee under the income -tax assessment orders came to Rs. 4,36,456. The depreciation mentioned in the balance sheet was much low and short by Rs. 2,89,525. This amount of depreciation was also liable to be deducted from the reserve fund. In this very connection his further contention before us is that in the relevant assessment year even the auditors pointed out that adequate provision for depreciation on fixed assets had not been made in the balance sheet. The submission was that the lesser depreciation shown to the extent of Rs. 2,89,525 would have to be adjusted against the reserve fund mentioned in the balance sheet. If this was done, there would be no reserve fund as shown in the balance sheet, but there would be a deficit. Even if the above debit balance was considered "loan" the same could not be under the circumstances considered as having been made from accumulated profits as necessary under S. 12 (1B). The AAC accepted the submission of the assessee in respect of the above sum of Rs. 1,35,330 but not in respect of the other arguments. The Tribunal by its order dated 11th January, 1963, upheld the contention of the assessee that the dealings of the assessee with the company were in a current account and could not be treated as "loans" for the purposes of S. 12(1B) of the Act. In regard to the questions raised in respect of the calculation of accumulated profits the Tribunal held that the claim for calculation of depreciation on the basis of the rates prescribed by the IT Act was not justified and was not admissible. Having regard to these findings the above two questions are referred for decision to this Court.