Written down value for section 15C capital employed excludes initial depreciation, preserving the incentive allowance in the computation.

For computing capital employed under section 15C of the Indian Income-tax Act, 1922, the written down value of assets was to be taken without reducing it by initial depreciation. The text explains that written down value under section 10(5), read with section 10(2)(vi), was not intended to treat initial depreciation as a deduction for this purpose because it was an incentive allowance for new machinery or plant. A harmonious reading of the provisions, supported by the later retrospective amendment, indicated that the relief under section 15C would be defeated if initial depreciation were subtracted in the capital computation.

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Issues: Whether, for computing the capital employed under section 15C of the Indian Income-tax Act, 1922, the written down value of assets had to be reduced by initial depreciation.

Analysis: The capital employed for section 15C relief had to be computed in accordance with the prescribed rules, which referred to the written down value of assets acquired by purchase and entitled to depreciation. The scheme of section 10(5) defining written down value, read with section 10(2)(vi), showed that initial depreciation was an incentive allowance given for new machinery or plant and was not to be treated as a deduction that reduced written down value for this purpose. The retrospective amendment in the later Act and the authorities considered supported the view that initial depreciation was not intended to be deducted when capital employed was computed for section 15C relief. A harmonious reading of the relevant provisions was required, and the contrary interpretation would defeat the object of the relief.

Conclusion: Initial depreciation was not to be deducted in computing the written down value for the purpose of determining capital employed under section 15C, and the question was answered in the affirmative in favour of the assessee.

Ratio Decidendi: For computing capital employed under section 15C, the written down value must be determined without deducting initial depreciation, since that allowance is an incentive and not a reduction to be carried into the capital computation.

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