2008 (9) TMI 435

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....itlal C. Jhaveri vs. CIT (1971) 80 ITR 582 (Bom) is not squarely applicable to the facts and circumstances of the present case. In P.K. Badiani vs. CIT 1976 CTR (SC) 466 : (1976) 105 ITR 642 (SC), the Hon'ble apex Court held that "the expression accumulated profits occurring in s. 2(22)(e) for that matter in any clause, means profits in commercial sense and not assessable or taxable profits liable to tax as income under the 1922 Act". Also in Hari Prasad Jayantilal & Co. vs. V.S. Gupta. ITO (1966) 59 ITR 794 (SC). the Hon'ble apex Court observed that "the word 'dividend' means dividend as ordinarily understood under the Companies Act, and also the head of payment or distribution specified therein". Hence, the accumulated pro....

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....l in the case of Mrs. Sujatha Venkateswaran vs. Asstt. CIT (l997) 61 ITD 485 (Mad) where again it was held that accumulated profit would mean only commercial profit. 5. On the other hand, the learned counsel for the assessee while supporting the appellate order submitted that depreciation has to be allowed while calculating the accumulated profits and in this regard, he relied on the following judgments: (1) G.R. Govindarajulu Naidu & Anr. vs. CIT (1973} 90 ITR 13 (Mad); (2) CIT vs. Jamnadas Khimji Kothari (1973) 92 ITR 105 (Bom); (3) Navnitlal C. Jhaveri vs. CIT (1971) 80 ITR 582 (Bom). 6. We have considered rival submissions carefully in the light of available material on record as well as decisions cited by the parties. Admittedl....

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....tial depreciation is required to be reduced for calculating the accumulated profits for determining the deemed dividend. However, this position seems to have been overruled by the Hon'ble Supreme Court in the case of P.K. Badiani vs. CIT. However, before us, the question is not of reduction of initial depreciation. But question is whether depreciation should be allowed to be reduced from commercial profits to determine accumulated profits for the purpose of s. 2(22)(e). Hon'ble Bombay High Court in the case of Navnitlal C. Jhaveri vs. CIT has very clearly held as under: "For the purpose of calculating profits within the meaning of the phrase 'accumulated profits' under s. 2(6A)(e), an allowance for depreciation should be m....

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....9; or as observed by Paton in his Accountants' Hand Book, Third Edition, it is an out-of-pocket cost as any other costs. Says the learned author in the above book, at p. 746, thus: There is still widespread misapprehension as to the precise significance of the depreciation charge. It is often deemed a more or less imaginary and hypothetical element, and is sharply contrasted with the regular 'out-of-pocket' operating costs. As a matter of fact there is nothing at all imaginary about depreciation as a cost of business operation and at bottom it is just as much an out-of-pocket cost as any other. The depreciation charge is merely the periodic operating aspect of fixed asset costs, and there is no doubt as to the reality of such ....