Actual cost means original asset cost, and depreciation is not a reserve; rebate denial failed under section 23A(1).

'Actual cost' was construed as the original cost incurred by the assessee in acquiring fixed assets, not the written-down cost after depreciation, because the statutory context treated depreciation as distinct from cost and reserves. On that basis, depreciation written off could not be added to reserves for applying proviso (b) to section 23A(1), and the accumulated profits did not cross the required threshold against actual cost. The proviso therefore did not apply, and the rebate on undistributed profits under the Finance Act, 1955 remained allowable.

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Issues: (i) Whether the expression "actual cost" in the relevant tax provisions meant the original cost of the fixed assets or the cost after deduction of depreciation. (ii) Whether proviso (b) to section 23A(1) applied to the assessee so as to deny rebate on undistributed profits under the Finance Act, 1955.

Issue (i): Whether the expression "actual cost" in the relevant tax provisions meant the original cost of the fixed assets or the cost after deduction of depreciation.

Analysis: The expression "actual cost" was construed as the real cost incurred by the assessee in acquiring the assets. The statutory context of the provisions dealing with depreciation and capital assets showed that, save in special cases expressly provided for, "actual cost" referred to the amount originally paid and not the written down value after depreciation. Depreciation written off was not treated as part of reserves for this purpose.

Conclusion: "Actual cost" meant the original cost and not the cost reduced by depreciation; this finding was in favour of the assessee.

Issue (ii): Whether proviso (b) to section 23A(1) applied to the assessee so as to deny rebate on undistributed profits under the Finance Act, 1955.

Analysis: Once actual cost was taken as the original cost, the accumulated profits and reserves did not exceed the actual cost of the fixed assets in the manner required by proviso (b). Depreciation could not be added to reserves, since company law did not treat provisions for depreciation as reserves. The proviso was therefore not attracted, and the rebate could not be denied on that basis.

Conclusion: Proviso (b) to section 23A(1) was not applicable, and the assessee was entitled to the rebate; this finding was in favour of the assessee.

Final Conclusion: The reference was answered in favour of the assessee, with the consequence that the disputed rebate under the Finance Act, 1955 remained allowable.

Ratio Decidendi: For purposes of the relevant tax provisions, "actual cost" denotes the original cost incurred by the assessee, and depreciation written off does not constitute a reserve; therefore, proviso (b) to section 23A(1) is attracted only when the statutory threshold is met on that basis.

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