Appeal No 1 of 1975
From the Judgment and Order dated 111291973 of the Gujarat High Court in IT Reference No 19 of 1971
KP Bhatnagar and Ms A Subhashini for the Appellant
The Judgment of the Court was delivered by RANGANATH MISRA J
This appeal by certificate has been carried by the Revenue challenging the decision rendered by the Gujarat High Court reported in 10 on a refer ence under the Income Tax Act 1961
Assessee is a Public Limited Company and the relevant assessment year is 1964 65
This was the second year of the assessee s new project at Vidyanagar going into production
On 1931965 the Income Tax Officer computed the assessment under section 1433 of the Act after determining the rebate admissible under sections 84 and 590 101 of the Act at Rs272372
He reopened the assessment under section 147b of the Act and by his reassessment order dated 29111966 recomputed the rebate at Rs251222
The appeal by the assessee to the Appellate Assistant Com missioner was dismissed
The Appellate Tribunal on further appeal by the assessee came to hold There is considerable force in the arguments urged by Sri Talati
In view of the phraseology used in the rules we are inclined to accept Sri Talati s plea that to the figure of capital as worked out under Rule 191 is to be added the average profit as worked out under sub rule 5 of Rule 19
Accordingly the average capital has to be taken at Rs4539537 and not at Rs4187034
The assessee s contention must therefore be upheld
 At the instance of the Revenue the Tribunal referred the following question for the opinion of the High Court Whether on the facts and in the circumstances of the case the figure arrived at by computation under rule 195 was to be added to the figure arrived at by computation under rule 191 for determining the average capital employed in the assessee s undertaking The High Court noticed the feature that there was dearth of judicial decisions on the point at issue dealt with the relevant provisions at length and came to agree with the conclusion reached by the Appellate Tribunal
Admissibility of exemption under section 84 of the Act which has been repealed with effect from 141968 has never been in dispute
What has been debated is the manner of its computation
Rule 19 of the Income Tax Rules 1962 pre scribes the method of computation and on a proper interpre tation of the relevant provisions of this Rule would depend the ultimate conclusion to be reached
Sub rule 1 3 and 5 are relevant
They provide 19
1 For the purposes of section 84 the capital employed in an undertaking or a hotel to which the said section applies shall be taken to be a in the case of assets acquired by purchase and entitled to depreciation 591 i if they have been acquired before the computation period their written down value on the commencing date of the said period ii if they have been acquired on or after the commencing date of the computation period their average cost during the said period b in the case of assets acquired by purchase and not entitled to depreciation i if they have been acquired before the computation period their actual cost to the assessee ii if they have been acquired on or after the commencing date of the computation period their average cost during the said period            3 Any borrowed money and debt due by the person carrying on the business shall be deducted and in particular there shall be deducted any debts incurred in respect of the business for tax including advance tax due under any provision of the Act Provided that any such debt for tax including advance tax shall for the purpose of this sub rule be deemed to have become due a in the case of any advance tax due under any provision of the Act or of any tax payable under section 140 A or under section 141 on the date on which under the provisions of section 211 or section 2 12 or section 2 13 or section 140 A or section 220 as the case may be the payment first became due b in any other case on the last day of the period of time within which the tax is payable under section 220
5 For the purpose of ascertaining the average amount of capital employed in a business during any computation 592 period the profits or losses made in that period shall except so far as the contrary is shown be deemed a to have accrued at an even rates throughout the said period and b to have resulted as they accrued in a corresponding increase or decrease as the case may be in the capital employed in the business Average Cost  Computation Period  depreciation  and Written Down Value  have been defined in sub rule 6
The High Court is right in saying that the dispute has to be resolved by referring to sub rules 1 3 5 and 6 of Rule 19
The High Court found that the value of assets entitled to depreciation under Rule 191a worked out to Rs40 10947
To this figure was added a sum of Rs 139764 on account of depreciation as on 11
1963 as also on account of the average value of additions
The other assets were valued under Rule 191b at Rs4438126 as on 111963
All put together the aggregate valuation came to Rs8588837
From this aggregate deduction of a sum of Rs4401803 representing loans other liabilities including provision for tax as authorised by Rule 19 was made leaving the valuation of the capital at Rs4167034
To this fig ure the sum of Rs352503 being half of the profit from the New Project was added to compute the value at Rs4539537
Following the provision of Section 84 of the Act entitlement to exemption was determined at Rs272372 representing 6 of the capital employed in the new industri al undertaking
The assessment was made by deleting the addition of Rs352503 which represented half the profit of the year
According to the Revenue profits earned during the year had already been taken into account in the process of computa tion and there was no warrant for its addition over again to the extent of a moiety
In fact that is the only dispute that fell to be resolved
The High Court took note of the fact that profits had necessarily been reflected in the average valuation of the assets but in its view the deeming provision in Rule 195 was the special procedure laid down for computation for the purpose of calculation and could not be overlooked for the reasons advanced by the Revenue
We find sufficient force in the reasoning of the High Court and accept the conclusion reached by it
The appeal is devoid of merit and is dismissed
Parties shall bear their own costs throughout
APJ Appeal dismissed


Summary:
The assessee a public limited company in the assess ment year 1964 65 was in the second year of its new project going into production
The Income tax Officer computed the assessment under section 1433 of the Income tax Act 1961 after determining the rebate admissible under sections 84 and 101 at Rs272372
He re opened the assessment under section 147b and re computed the rebate at Rs251222
The appeal by the assessee to the Appellate Assistant Commissioner was dis missed
The Appellate Tribunal accepted the plea of the assessee that to the figure of capital as worked out under Rule 191 is to be added the average profit as worked out under sub rule 5 of Rule 19 and held that the average capital has to be taken at Rs4539557 and not at Rs4187034
In the Reference the High Court agreed with the conclusion reached by the Appellate Tribunal
Dismissing the Appeal of the Revenue HELD 1
Admissibility of exemption under section 84 of the Incometax Act 1961 which has been repealed with effect from 141968 has never been in dispute
What has been deputed is the manner of its computation
Rule 19 of the Income tax Rules 1962 prescribes the method of computation and on a proper interpretation of sub rule 1 3 and 5 of this Rule would depend the ultimate conclusion to be reached
590F G 2
The High Court is right in saying that the dispute has to be resolved by referring to sub rules 1 3 5 and 6 of Rule 19
The High Court found that the value of assets entitled to depreciation under Rule 191a worked out to Rs4010947
To this figure was added a sum of Rs139764 on account of depreciation as on 1163 as also on account of the average value of additions
The other assets were valued under Rule 191b at Rs4438126 as on 1163
All put together the 589 aggregate valuation came to Rs8538837
From this aggre gate deduction of sum of Rs4401803 representing loans other liabilities including provision for tax as authorised by Rule 19 was made leaving the valuation of the capital at Rs4187034
To this figure the sum of Rs352503 being half of the profit from the New Project was added to compute the value at Rs4539537
Following the provision of section 84 entitlement to exemption was determined at Rs272372 representing 6 of the capital employed in the new industri al undertaking
592C E 3
Re assessment was made by deleting the addition of Rs352503  which represented half the profit of the year
According to the Revenue profits earned during the year had already been taken into account in the process of computa tion and there was no warrent for its addition over again to the extent of a moiety
In fact that is the only dispute that fell to be resolved
The High Court took note of the fact that profits had necessarily been reflected in the average valuation of the assets but in its view the deeming provision of Rule 195 was the special procedure laid down for computation for the purpose of calculation and could not be over looked for the reasons advanced by the Revenue
There is sufficient force in the reasoning of the High Court and the conclusion reached by it is accepted
592E G