The main legal point established in the judgment is that the profits for the purpose of R. 5 of Sch. II should be calculated in the manner prescribed by Sch. I, and the principles applicable in respect of deductions must be uniform for both purposes.

SATYANARAYANA RAO, J. :- These references though they relate to different assessees arise under the Excess Profits Tax Act, 1940, and the question referred is substantially the same in both except for the dates.

"Whether in the circumstances of the case, the Tribunal was right in law, in holding that, for the purpose of computing the capital employed in the business as at the beginning and the end of the standard period 1-10-1935 to 31-12-1936 (31-1-1936 is a mistake) the value of the depreciable assets should be determined with reference to the depreciation allowable under the Indian Income-tax Amendment Act, 1939".

(The standard period in R.C. No. 63 of 1947 is from 1-1-1936 to 31-12-1936).

2. In view of the arguments addressed in these cases we had to alter the question and it was agreed that the following question brings out clearly the real bone of contention between the parties : "Whether the profits for the purpose of R. 5 of Sch. II should be calculated in the manner prescribed by Sch. I" For the disposal of these two references it would be sufficient to refer to the facts in one of the cases, and the facts are confined to R.C. No. 73 of 1946. The chargeable accounting period in the case of this assessee commenced on 1-9-1939 and ended with 31-12-1939. As the business of the assessee was an old business, the standard year selected is the period from 1-10-1935 to 31-12-1936. The Central Board of Revenue fixed the standard profits at Rs. 45,000. The proportionate standard profits for the chargeable accounting period of four months will be Rs. 12000. The average capital in the chargeable accounting period is Rs. 8,78,134. The capital of the standard period was Rs. 4,49,549 according to the excess profits tax officer. As there was increase of the capital in the chargeable accounting period over the capital of the standard period by Rs. 4,28,585, the additional profits for the standard period was arrived at by taking the statutory percentage of 8 per cent. on the increase of capital namely, Rs. 4,28,585, which yielded Rs. 34,287. The proportion of this for the four months is Rs. 11,429 and adding this figure to the Rs. 12000 the total of the adjusted standard profits in proportion to the chargeable accounting period is Rs. 23,429.

3. The dispute relates to the calculation of the capital in the standard period. According to the assessee the capital during the standard period should be Rs: 4,22,186. The difference between the two figures is due to the fact that in the calculating the depreciation of the fixed assets, the excess profits tax officer applied the rules for depreciation provided under the Income-tax Act of 1922 before it was amended in 1939, while the assessee applied the amended Act. The question for consideration is whether the assessee is right or the contention of the Crown should be upheld. The Appellate Tribunal accepted the contention of the assessee. Hence the Reference.

4. In the other case, the decision in this case by the Appellate Tribunal was followed and therefore a Reference was made in that case also of the same question.

5. It will be seen that the difference in the standard capital according to the two calculations is Rs. 27,363. If the average capital during the standard period decreases, the increase of the average capital in the chargeable accounting period will be more than Rs. 4,28,585 by Rs. 27,363 according to the assessee. The result of such an increase is, in calculation the profits during the standard period for adjustment by applying the statutory 8 per cent., the figure arrived at will be more than Rs. 34,287 and for the four months, a larger amount has to be added to the sum of Rs. 12,000. In other words, the standard profits will increase if the average capital during the standard period decreases. From the assessees point of view, if the average standard profits increase, the profits during the chargeable accounting period which would be subject to excess profits tax will decr