Written down value and retained profits: initial depreciation is deductible, while expansion reserves remain includible in capital employed.

Initial depreciation is required to be deducted while computing the written down value of assets for capital computation under the 1949 Rules, and the point was decided in favour of the Revenue. Retained profits placed in fixed deposits for future expansion and business needs were treated as moneys required for the purposes of the business, including working capital, meeting liabilities, reducing borrowings and financing development, so they were not excludable from capital employed under rule 3(5) and the issue was decided in favour of the assessee. The decision applies the Court's earlier binding view on depreciation and treats business-retained surplus as part of capital employed.

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Issues: (i) Whether initial depreciation had to be deducted in determining the written down value of the assets for the purpose of rule 3(1)(a)(i) of the Indian Income-tax (Computation of Capital of Industrial Undertakings) Rules, 1949. (ii) Whether amounts kept in fixed deposits as retained profits for future expansion were to be excluded from capital employed as moneys not required for the purposes of the business under rule 3(5) of the said Rules.

Issue (i): Whether initial depreciation had to be deducted in determining the written down value of the assets for the purpose of rule 3(1)(a)(i) of the Indian Income-tax (Computation of Capital of Industrial Undertakings) Rules, 1949.

Analysis: The issue was governed by the earlier binding view already taken by the Court, on the basis that initial depreciation is required to be deducted while computing the written down value of the assets for capital computation under the relevant rule. That view was applied without further independent reconsideration.

Conclusion: The question was answered in the negative and in favour of the Revenue.

Issue (ii): Whether amounts kept in fixed deposits as retained profits for future expansion were to be excluded from capital employed as moneys not required for the purposes of the business under rule 3(5) of the said Rules.

Analysis: The Court treated the accumulated surplus as retained profits maintained for business purposes, including meeting liabilities, providing working capital, reducing borrowings, and financing future expansion. Amounts so retained for expansion and development were held to be moneys required for the purposes of the business and not liable to be excluded under rule 3(5).

Conclusion: The question was answered in the affirmative and in favour of the Assessee.

Final Conclusion: The reference was disposed of by answering one question for the Revenue and the other for the Assessee, with the capital computation question on retained profits decided in favour of inclusion and the depreciation question decided against the Assessee.

Ratio Decidendi: Retained profits set aside for future expansion and development constitute moneys required for the purposes of the business, while initial depreciation is deductible in computing the written down value of assets for capital computation under the relevant rules.

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