Sabyasachi Mukharji, J. - (1.) This reference under Section 256(1) of the I.T. Act, 1961, arises out of the assessment for the assessment year 1956-57. The following question has been referred to us : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that for the purpose of computing the capital employed under Section 15C of the Indian Income-tax Act, 1922, the written down value had to be worked out without deducting therefrom the initial depreciation ?"
(2.) The only point involved in this reference relates to the ITO's action in computing the capital employed under Section 15C of the Indian I.T. Act, 1922, on the basis of written down value of fixed assets as on January 1, 1955, as reduced by the initial deprecutioa allowed for the various years. The facts of the case are that the Tribunal had directed the ITO to give relief to the assessee under s, 15C of the Indian I.T. Act, 1922, and compute the capital employed for the purpose in accordance with the rules. The ITO computed the capital as stated above and the assessee was aggrieved by the reduction of the written down value of the fixed assets by the initial depreciation. It was suggested before the AAC that the Bombay High Court had held in the case of Burmah-Shell Refineries Ltd. [1968] 67 ITR 653, to which we shall presently refer, that for the purpose of computing the capital employed under Section 15C of the 1922 Act, the written down value had to be worked out without deducting therefrom the initial depreciation. The AAC accepted this view and further held that it was at best a debatable issue and, therefore, the ITO should not have computed the capital in the manner done.
(3.) Aggrieved by the said decision of the AAC, the Department went up in appeal. The first contention was the applicability of Section 35 of the old Act in rectifying the mistake. As this has not been referred to us, we need not detain ourselves on this aspect of the matter. The Tribunal in its order observed as follows ; "We agree with the submissions made by the assessee's counsel. Only when the asset is sold or when the aggregate of all the allowances including that of initial depreciation exceeds the original cost that initial depreciation is to be taken into account. Otherwise, for the purpose of computing written down value, the provisions of Section 10(2)(vi) clearly enjoin upon the Income-tax Officer not to take into account initial depreciation. The written down value for assessment purposes, therefore, should also be taken as for computation of capital under Section 15C. If prior to the relevant date of commencement of the accounting period, the asset happens to be sold, then the question of taking it into account for the purpose of capital computation does not arise. If the aggregate of the allowances including initial depreciation exceeded the original cost prior to the date of commencement of the accounting period and the written down value was worked out by the Income-tax Officer for assessment purposes at zero, then again the Income-tax Officer would naturally take the same written down value for the computation of the capital. Except for the two contingencies, there is no warrant for reducing the capital employed by initial depreciation in the manner done by the Income-tax Officer. We may rely upon the observations of the Bombay High Court at pages 660-665 of Volume 67 ITR. We, therefore, agree with the conclusion reached by the Appellate Assistant Commissioner that the Income-tax Officer was wrong in reducing the capital employed by initial depreciation.....";