COMMISSIONER INCOME TAX GUJARAT Vs. ROHIT MILLS LIMITED
HIGH COURT OF GUJARAT
COMMISIONER OF INCOME TAX
ROHIT MILLS LIMITED
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P.N.BHAGWATI, J.M.HELAT -
(1.) The question arising in this Reference is whether it is permissible to the Income Tax Department to deduct from the taxation reserve account shown on the credit side of the balance sheet the amount of taxes paid from the other available funds of the assessee company while computing its capital under the Business Profits Tax Act XXI of 1947.
(2.) That Act came into force on the 11th of April 1947 having taken the place of the Excess Profits Tax Act which was repealed on March 30 1946 Section 4 of the Act which is the charging section provides that subject to the provisions of the Act there shall in respect of any business to which the Act applies be charged levied and paid on the amount of the taxable profits during any chargeable accounting period a tax (business profit tax) which shall in respect of any chargeable accounting period ending on or before the 31st day of March 1947 be equal to sixteen and two-thirds per cent of the taxable profits and in respect of any chargeable accounting period beginning after that date be equal to such percentage of the taxable profits as may be fixed by the annual Finance Act. By Finance Acts of 1948 and 1949 the amount of taxable profits was reduced from sixteen and two-thirds per cent of the taxable profits to ten per cent. Section 2(17) defines taxable profits as meaning the amount by which the profits during a chargeable accounting period exceed the abatement in respect of that period. Abatement has been defined in clause (1) of sec. 2 and so far as is relevant for the purposes of this Reference means in respect of any chargeable accounting period ending on or before the 31st day of March 1947 a sum which bears to a sum equal to in the case of a company not being a company deemed for the purposes of sec. 9 to be a firm six per cent of the capital of the company on the first day of the said period computed in accordance with Schedule II or one Lakh of rupees whichever is greater. The business profit tax was therefore on the percentage allowed under the relevant Finance Act corresponding to the chargeable accounting period on taxable profits less the abatement computed in accordance with Schedule II of the Act. The accounting period according to clause (2) of sec. 2 means a period in relation to any business which is or has been determined as the previous year for that business for the purposes of the Income Tax Act. Chargeable accounting period as defined by clause (4) of sec. 2 means any accounting period falling wholly within the term beginning on the first day of April 1946 and ending on the 31st day of March 1949 and where any accounting period falls partly within and partly without the said term such part of that accounting period as falls within the said term. The proviso to that clause provides that where an accounting period falls partly before and partly after the end of March 1947 so much of that accounting period as falls before and so much of that accounting period as falls after the end of March 1947 shall be deemed each to be a separate chargeable accounting period. So far as the present Reference is concerned the chargeable accounting periods are from 1-1-48 to 31 and 1-1-49 to 31-3-49.
(3.) For the purpose of arriving at the figure of abatement the method of computing the capital and taxable profits is provided for by Schedule II rules 1 and 2 to the Act. Rule I provides that for the purposes of ascertaining abatement under this Act in respect of any chargeable accounting period the capital of a company shall be computed in accordance with the rules following thereto. Rule 2(1) then provides that where the company is one to which rule 3 of Schedule I applies its capital shall be the sum of the amounts of its paid-up share capital and of its reserves in so far as they have not been allowed in computing the profits of the company for the purposes of the Income Tax Act diminished by the cost to it of its investments or other property the income from which is not includable in the profits so far as that cost exceeds any debt for money borrowed by it. Sub-rule (2) of rule 2 provides that in all other cases the capital shall be the sum ascertained in accordance with sub-rule (1) diminished by the cost to the company of its investment so far as that cost exceeds any debt for money borrowed by it.;
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