JUDGMENT

KHANNA, J.:— This judgment would dispose of two cross Civil Appeals Nos. 1491 and 1693 of 1971 which have been filed by special leave by the assessee, M/s. Tea Estate India (P) Ltd., and the Commissioner of Income-tax West Bengal respectively against the judgment of the Calcutta High Court answering the following question referred to it under Section 66 (1) of the Indian Income-tax Act, 1922 (hereinafter referred to as the Act) partly in favour of the assessee and partly in favour of the revenue:

"Whether on the facts and in the circumstances of the case, the balances in the undernoted accounts are includible in the accumulated profit within the meaning of Section 2 (6-A) (c) and if so the what extent?

Dibru Darang Tea Co. Ltd. Taikrong Tea Co. Ltd.

Land A/c. Rs. 19,30,374/- Rs. 10,11,216/-

Profit and Loss Account Rs. 16,69,285/- Rs. 18,73,125/-

General Reserves and liabilities for taxation Rs. 3,50,799/- Rs. 2,243/-

Reserve created on writing up the value of the assets of the tea estates Rs. 15,69,828/- Rs. 58,772/-"

2. The matter relates to the assessment year 1956-57, the corresponding accounting year for which ended on June 30,1955. The assessee company held 52,350 shares out of the total issued shares of 54,600 in Dibru Darang Tea Co. Ltd.(hereinafter referred to as DDT Co.) and 22,998 shares out of the total issued shares of 23,000 in Taikrong Tea Co. Ltd. hereinafter referred to as TT Co.). DDT Co. and TT Co., were tea companies growing, manufacturing and selling tea. For this purpose, those two companies owned large tea estates consisting of land, building, plant and machinery. On August 11, 1947 the said tea companies sold their entire tea estates, including all the assets, to Brooke Bond Estate India Ltd. As a result of those sales, DDT Co. received a surplus of Rs. 17,18,081/- over the book value of its assets. Likewise, TT Co. received a surplus of Rs. 13,11,339 over the book value of its assets. The amount relating to the land of the tea estate of DDT Co. was Rs. 19,30,374 and that relating to TT Co. was 10,11,216/-. DDT Co. realised Rs. 2,12,313 less than their book value on the sale of the other assets. It may also be mentioned that in 1936 the assets of the to companies were revalued. On such revaluation the book value of the assets of DDT Co. appreciated by an amount f Rs. 15,69,828 and those of TT Co. by amount of Rs. 58,772. These amounts were carried to the respective reserves of the two companies.

3. DDT Co. and TT Co. went into voluntary liquidation on October 29, 1954. On account of the liquidation of the two companies, the assessee company became entitled to receive Rs. 57.69,186/- out of the total distributable assets of DDT Co. and Rs. 36.53,453/- out total distributable assets of TT Co. During the relevant accounting period the assessee received Rs. 52,23.786/- and Rs. 34.15,500/- (in all Rs. 86,39.286/-) from the liquidators of DDT Co. and TT Co. respectively.

4. On behalf of the assessee company it was urged before the Income-tax Officer that apart from Rs. 2,47.921/- which had been assessed as capital gain under Section 12-B of TT Co. for the assessment year 1949-50, no other amount could be included in the computation of he accumulated profits available for distribution under Section 2 (6-A) (c) of the Act. The Income-tax Officer rejected this contention and allowed only a deduction of Rs. 27.000/- being payment on share premium account and included the balance of Rs. 86,11.986/- (grossed up to Rs. 91.64.075/-) as the assessees dividend income under Section 2 (6-A) (c) of the Act.

5. On appeal the Appellate Assistant Commissioner allowed a further deduction of Rs. 1.77,964/- representing pre-incorporation advances in the case of TT Co. The Appellate Assistant Commissioner rejected all other contentions of the assessee, including the contention that 60 per cent, of the amounts appearing under he head "balance of appropriation account" in the balance-sheets as also the general reserves and liab