TaxTMI 
TaxTMI 
1982 (8) TMI 47
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....idend under section 2(6A)(e) of the Indian Income-tax Act, 1922, for the assessment years 1955-56 and 1956-57 ? " The question arises in the following circumstances : The assessment for the year 1955-56 made on November 30, 1955, in respect of the assessee concerned herein was sought to be reopened under s. 34(1)(a) of the Indian I.T. Act, 1922, by a notice dated March 6, 1962, to include income from dividends as defined under s. 2(6A)(e) of the said Act. The assessment in pursuance of this notice was completed on June 27, 1964, against which order there was an appeal. The appeal was allowed and the matter was remitted to make a reassessment after obtaining complete particulars regarding the extent of accumulated profits. Accordingly,....
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....both these amounts should not be taken into consideration in determining the accumulated profits. Aggrieved by the decision of the Tribunal, the Department asked for and obtained this reference. The expression " dividend " is defined in cl. (6A) of s. 2 of the 1922 Act. It is an inclusive definition and we are concerned only with cl. (e) herein which reads as follows : " Any payment by a company, not being a company, in which the public are substantially interested within the meaning of section 23A, of any sum (whether as representing a part of the assets of the company or otherwise) by way of advance or loan to a shareholder or any payment by any such company on behalf or for the individual benefit of a shareholder, to the extent to ....
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....Gujarat High Court referred to the off cited passage in In re Spanish Prospecting Co. Ltd. [1911] I Ch 92, 98 (CA) by Fletcher-Moulton L.J., which is to the following effect: "' Profits' implies a comparison between the state of a business at two specific dates usually separated by an interval of a year. The fundamental meaning is the amount of gain made by the business during the year. This can only be ascertained by a comparison of the assets of the business at the two dates ... if the total assets of the business at the two dates be compared, the increase which they shew at the later date as compared with the earlier date (due allowance of course being made for any capital introduced into or taken out of the business in the meanwhile)....
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.... " Allowance for depreciation is to replace the value, of an asset to the extent it has depreciated during the period of accounting relevant to the assessment year and as the value has, to that extent, been lost, the corresponding allowance for depreciation takes its place and, therefore, when arriving at the profits for that period the amount of depreciation has to be deducted, because the amount of the value lost by depreciation is a capital loss which must be replaced first, as, otherwise, the initial capital would, to that extent, incorrectly and falsely be converted into and treated as profits. Development rebate is not intended to replace any capital loss by wear and fear or in any such other way. It, therefore, forms part of real pr....
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.... decision of the Calcutta High Court in CIT v. Bibhuti Bhusan Dutt [1963] 48 ITR 233, was brought to their notice, the Supreme Court distinguished the same, holding that that was a case where the income of the assessee was assessed under the head " Income from property " under s. 9 of 1922 Act. The principle that emerges from the above decisions is that the building and machinery depreciation fund is not profits and, therefore, cannot be treated as or included in accumulated profits. It is a necessary deduction from out of the profits, since it is a fund set apart each year with view to replace the machinery and building, as the case may be, after the life of the present machinery or building is over. But the same cannot be said with res....