The actual cost of fixed assets under section 23A(1) proviso (b) of the Income Tax Act, 1961, means the original cost and not the original cost less depreciation. Depreciation is not a reserve and cannot be included in the accumulated profits and reserves for the purpose of section 23A(1) proviso (b) of the Act.

MITTER, J.

1. TWO questions have been referred to this Court, one under s. 66(1) and the other under s. 66(2) of the Act, in two separate references which are hereby consolidated. The questions are as follows:

"(1) Whether, on the facts and in the circumstances of the case, the assessee-company is entitled to rebate of one anna per rupee on the undistributed balance of the profits as provided in cl. (i) of the proviso to Item B of Part I of the Schedule to the Finance Act, 1955 ? (2) Whether, on the facts and circumstances of the case, the Tribunal was correct in holding that the provisions of proviso (b) to s. 23A(1) of the IT Act were not applicable to the assessee-company for 1955-56 ?"

2. THE facts are as follows : THE assessee is a limited company in which the public are not substantially interested. For the asst. yr. 1955-56, the relevant accounting year ending on 30th Nov., 1954, the assessee was assessed on a total income of Rs. 10,53,739. THE gross income-tax and corporation tax computed on the above was Rs. 4,57,711. THEre was thus a sum of Rs. 5,96,021 available for distribution to the shareholders. THE company declared a dividend to the extent of 62 per cent. of the distributable profit. In computing the taxes payable no rebate was allowed, under the Finance Act of 1955, on the undistributed profits of the company on the footing that although no order under s. 23A(1) had actually been passed the provisions of that section were applicable to the company. In denying this rebate, the ITO noted that the assessee was a company to which the provisions of s. 23A appeared to be applicable and the application of the section was under consideration. THE said officer further noted that if s. 23A was not eventually applied, the assessee would be entitled to the rebate and he stayed the collection of so much of the amount of tax as would be equal to the rebate in question. THE assessee preferred an appeal to the AAC. THEre it was contended that as the company had already declared more than 60 per cent. of the profits available for distribution, s. 23A(1) was not applicable and the rebate ought to be allowed. THE AAC felt that the contention ought to be accepted. He further held that if and when an order under s. 23A(1) was passed the rebate allowed could be recovered. THE Revenue then went in second appeal to the Tribunal. THEre it was argued that the granting of the rebate on undistributed profits in terms of the Finance Act of 1955 was independent of the pendency or otherwise of the proceedings under s. 23A of the Act and the assessee was not entitled to the rebate on the undistributed profits of the company if the circumstances were such that the said section could be made applicable. Being of the view that there was no definite finding as to whether the assessee's affairs attracted the operation of s. 23A, the Tribunal remanded back the case to the ITO for reporting the relevant facts and giving his finding on this point. On remand, the ITO found that the accumulation of past profits amounted to Rs. 36,97,985 and it had exceeded the paid-up capital of the assessee-company, Rs. 20,00,000. Further, the paid-up capital of the assessee, i.e., Rs. 20,00,000, exceeded the actual cost of the fixed assets as on 30th Nov., 1954, namely, Rs. 14,92,881 being the difference between the original cost, i.e., Rs. 50,99,335, and the depreciation written off, i.e., Rs. 36,06,454. At the final hearing before the Tribunal it was urged on behalf of the Revenue that the assessee was a company to which the provisions of proviso (b) to s. 23A(1) were applicable inasmuch as, the reserves representing accumulated profits of past years which had not been the subject of an order under s. 23A exceeded the aggregate of the paid up capital of the company.

Sec. 23A(1) as it stood at the relevant time contained a proviso which ran as follows :

"Provided that-- (a) in the case of a company whose business consists wholly or mainly in the dealing in o