( 1 ) THIS reference has been made under section 66 (1) of the Indian Income-tax Act 1922 at the instance of the Commissioner of Income-tax Bombay North Ahmedabad. The assessee in this case is the Viramgam Mills Company Limited. The relevant assessee year is 1952-53 the accounting year being the calendar year 1951. The assessee Company is one in which at the relevant time the public were not substantially interested as envisaged under sec. 23a of the Income-tax Act. The balance-sheet of the Company for the accounting year showed the paid up capital of the Company as Rs. 6980 On the liability side of the balance-sheet there was the Buildings and Machinery Depreciation Fund amounting to Rs. 6 24 948 the Reserve Fund amounting to Rs. 2 20 0 and the Income tax Fund in excess of requirement amounting to Rs. 93 387 making in all Rs. 9 38 335 The sum of Rs. 6 24 948 under the leading Buildings and Machinery Depreciation Fund and been carried forward from year to year in the balance sheets of the Company from the sear 1946 onwards. In 1946 the assessee Company had sold its buildings and machinery and realised a sum of Rs. 400 for its buildings and Rs. 21 99 38 for its machinery. It thus realised in all a sum of Rs. 25 99 38 The original cost of these buildings was Rs. 3 15 264 and that of the machinery was Rs. 10 44 491 making in all Rs. 13 59 755 The sum of Rs. 6 24 948 was made up of various amounts shown in the Buildings and Machinery Depreciation Fund year after near upto and inclusive of the calendar year 1945. In the balance-sheet as on 31/12/1945 the original cost of Rs. 13 59 755 was shown on the Assets side and the provision of Rs. 6 24 948 was shown on the Liabilities side under the head Buildings and Machinery Depreciation Fund For the assessment year 1952-53 the Companys return showed an income of Rs. 81 860 It was assessed on an income of Rs. 61 935 and the tax thereon amounted to Rs. 35 591 leaving a balance of Rs. 46 0. 344 The assessee Company at its general meeting held on 5/12/1952 declared a dividend of Rs. 27 920 i. e. ; a little over 60 per cent of Rs. 46 344 The Income-tax officer having regard to the paid up capital of the Company and the total of the balance in the aforesaid three accounts amounting to Rs. 9 38 335 considered that the first proviso to section 23a of the Income-tax Act was applicable to the case. He considered the balance in the three accounts as reserves representing accumulation of past profits. He directed that the balance of Rs. 18 424 (Rs. 46 344 minus Rs. 27 920 also should be deemed to have been distributed among the shareholders of the Company as on 5/12/1952. The Appellate Assistant Commissioner confirmed the action of the Income-tax Officer. There was a further appeal to the Income-tax Appellate Tribunal. It held that the sum of Rs. 2 20 0 shown as a Reserve Fund and the sum of Rs. 93 387 shown under the heading Income-tax Fund in excess of requirement constituted reserves as contemplated under the aforesaid proviso. As regards the sum of Rs. 5 24 948 under the heading Buildings and Machinery Depreciation Fund the Income tax Tribunal held that the same did not represent accumulations of past profits and that the same could not have been the subject matter of an order under sec. 23a in the past. The Tribunal held that the Income-tax officer was not justified in passing an order under the proviso to sec. 23a (1 ). A question of law having arisen a statement of the case has been prepared and the matter has been referred to us under sec. 66 (1 ).

( 2 ) THE question of law that has arisen is the following:whether on the facts and circumstances of the case the depreciation fund constitutes a reserve within the meaning of the first proviso to section 23a (1)?

( 3 ) IT has been strenuously urged before us by the learned Advocate General who appears for the Commissioner that the Buildings and Machinery Depreciation Fund constitutes a reserve within the meaning of the first proviso