TaxTMI 
TaxTMI 
1958 (10) TMI 35
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....he assessee's mill site at Rajapalayam. The erection of the weaving machinery and the construction of factory buildings were complete by June, 1946, and the weaving department did not work during the account year ended June, 1946. 3. For the chargeable accounting period commencing from July 1, 1945, and ending on March 31, 1946, the Excess Profits Tax Officer in computing the average capital of the assessee excluded the value of buildings, plant, machinery and electric fittings relating to the weaving department as such department did not work during the relevant chargeable accounting period. 4. The Appellate Assistant Commissioner, however, held that the value of the buildings, plant and machinery and electric fittings of the weaving department did not represent an excluded investment of moneys not required for the business, the amount expended for the weaving department represented capital employed in the business and it has, therefore, to be taken into account in the computation of average capital. 5. At the instance of the Commissioner of Excess Profits Tax, Madras, the Excess Profits Tax Officer preferred an appeal to the Appellate Tribunal and it was contended on....
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...., and plant, machinery and electrical equipment purchased from October 31, 1945, for a weaving section proposed to be added to it. The outlay on these new buildings and the weaving machinery were ledgerised only along with the other buildings and machinery already held by the assessee till then. There were no separate ledger accounts to show the weaving section assets separately. 3. The total outlay on the assets acquired for the above outlay are to be found in annexure 'A' annexed hereunto and forms part of the weaving section as on March 31, 1956, is Rs. 2,08,291. Details of the case : The weaving mills started functioning only from July, 1947, and the spinning section was closed on September 1, 1947, according to the directors' report, dated November 12, 1947, copy whereof is annexed hereunto as annexure 'B' and forms part of the case. The yarn spun during July and August, 1947, was not utilised in the weaving section, but sold outside on account of allotment regulations. 4. The aforesaid outlay was financed primarily out of loans from banks obtained on the security of the cotton stock and an equitable mortgage on the immovable property held. The pub....
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....alculating the standard profit applying the statutory percentage." 8. The Tribunal, in paragraph 3 of its order, no doubt, has made a passing reference to consideration of the spinning and weaving mills as two different businesses. It is respectfully submitted that this aspect does not appear to have been made the basis of its decision. For the purpose of its decision, as set out above, the Tribunal has taken both the businesses only as one and indivisible, the weaving establishment being only an extension, which, however, it found, had not contributed to the profits of the chargeable accounting period in question and accordingly the capital outlay thereon did not form part of the average capital employed by the assessee for its businesses during the chargeable accounting period. 9. As pointed out earlier there are no separate sets of books maintained for the weaving department and the various assets acquired have been ledgerised from time to time in the only set of books maintained for all its activities making no distinction therein between the spinning and weaving sections. There is also only one balance-sheet, exhibiting thereon all the assets and liabilities of the asses....
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....on of the Assistant Commissioner. In pursuance of the orders made by this court in C.M.P. No. 10254 of 1951, the Appellate Tribunal referred the following question for the decision of this court: "Whether on the facts and the circumstances of the case in computing the average amount of capital employed in the assessee's business in the chargeable accounting period ending 31st March, 1946, the exclusion of the value of the building, plant, machinery and electric fittings of the weaving department was in accordance with Schedule II, rule I". On 20th August, 1956, an order was made directing the Tribunal to "submit a specific finding on the question, whether the spinning and weaving departments constituted one business of the assessee or whether they constituted two separate and distinct business of the assessee during the relevant period." That finding has now been received and it is to the effect that "both the spinning and weaving sections of the assessee can only form part and parcel of a single manufacturing business carried on by the assessee during the chargeab....
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....ired otherwise than by purchase. It will be also noticed that the word "employed" used in the sub-rule relates to capital and not to assets. Purely as a matter of grammatical construction it is not necessary to satisfy the requirements of this sub-rule that the asses should be employed in the business. What the rule says is that the capital employed in the business shall be taken to be the price or value of the assets or the amount of the debts. It does not say that the assets should be employed in the business. Apart from authority, therefore, on the mere language of the rule, one would be justified in saying that if the funds of the assessee have been used to acquire assets for being used in the business of the assessee, that would be capital employed in the business within the meaning of the rule. Actual employment of the assets acquired is not necessary. The assessee may lay by a large stock of spare parts. It may happen that no occasion arise to utilise such spare parts. Still the money spent in acquiring the spare parts would be capital employed in the business of the assessee. Similarly the assessee may acquire an engine to replace another which its is feared may break down.....
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....nally paid for it, and there is no decrease in the capital when the capital is computed in accordance with the Seventh Schedule. The Crown put forward, as an alternative contention, the view that the damage which had occurred produced the result that whatever capital the company previously had at Hull was no longer 'employed in its trade or business.' In my opinion, this contention is not sound. The fact that the Hull building has been so much damaged that it cannot at present be used as a theatre does not seem to me in itself to establish that the freehold site and what is upon it is not still 'employed in the trade or business'. If the company decided to abandon the use of the site of the purpose of its business, different considerations might arise. If, however, the theatre was for other reasons temporarily closed, or if it was in course of reconstruction and improvement, this would not justify the contention that it formed no part of the capital referred to in Part II of the Seventh Schedule. Even if it be the case that, for the purposes of excess profits tax, the capital employed in a trade or business of a company does not necessarily included all the capital ....
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....he assessee was not actually able to do so. Mr. Rama Rao Sahib referred to certain passages from the speech of Lord Simonds at page 299: "My Lords, it is plain on the face of this sub-para. (1) that 'capital employed' means assets employed. For the capital is something which 'consists' of money or 'consists' of assets of various kinds. Then by a slight twist the 'value' of the assets becomes the 'amount' of the capital." Again, "My Lords, I see no valid reason for disregarding and giving no meaning to the word 'employed'." When, however, we read the speeches of the other learned Lords we find that this view that the assets should have been employed expressed by Lord Simonds was not accepted by them. Lord Radcliffe said: "The test in computing capital is not whether an asset belonging to the proprietor of a business is employed in his business or not, but whethe....