Commissioner Of Income Tax V. The Glasgow Estate Co, Ltd.

1956 Present: Basnayake, C. J., and Gunasekara, J.

COMMISSIONER OF INCOME TAX, Appellant; and THE GLASGOW
ESTATE CO., LTD., Respondent

S. C. 5--Income Tax Case stated BRA/PT 4

Income tax-Profits Tax Act, No. 5 of 1948-Section 9-" Capital employed in the business".

Where a limited company engaged in producing tea retained in the form of cash the equivalent of the amounts that were likely to be needed for the payment of (a) the income tax that would shortly fall due and (b) dividends that would shortly be declared-

Held, that the sum of money so retained was " capital employed in the business " within the meaning of section 9 of the Profits Tax Act, No. 5 of 1948.

CASE stated under section 74 of the Income Tax Ordinance (Cap. 188) read with section 14 of the Profits Tax Act, No. 5 of 1948.

M. Tiruchelvam, .Deputy Solicitor-General, with A. Mahendrarajah, Crown Counsel, and I. F. B. Wickremanayake, Crown Counsel, for the appellant.

H. V. Perera, Q.C., with S. Ambalavanar, for the respondent.

Cur. adv. vult.

 October 26, 1956. GUNASEKARA, J.-

This is an appeal by the Commissioner of Income Tax by way of a Case Stated under section 74 of the Income Tax Ordinance (Cap. 188) read with section 14 of the Profits Tax Act, No. 5 of 1948. Section 9 of the latter enactment provides that the chargeable surplus of profits or income of any person for each profits tax year shall be ascertained by deducting from the taxable profits or income of that person for that year an allowance equal to the larger of the two following amounts :-

(a) an amount equal to six per centum of the capital employed in the business of that person at the commencement of the accounting period of which the profits are assessed to tax in that year, or

(b) an amount of fifty thousand rupees.

The main question that arises upon the appeal is the meaning of the expression " capital employed in the business " that is used in this section.

The respondent is a limited company engaged in producing tea. In an appeal to the Commissioner of Income Tax against an assessment to profits tax for the year 1951 it claimed that an item of cash amounting

to Rs. 475,162 should have been included in the computation of the capital employed in its business at the commencement of that year. This item, according to the company's balance sheet for 1950, was made up as follows :-

	Rs.	c.
National Bank of India, Ltd.-
Current Account	468,258	55
Dividend Account	5,137	35
Estate Current Account	1,624	62
Cash on Estate	141	30
	475,161	82

 The assessor had reduced the amount to Rs. 375,162, on the ground that that Was " a reasonable estimate of the amount of cash used by the company for the purpose of the business ". Upon a reference back to the assessor the question was discussed between an assistant commissioner and the company, and the former offered to fix the amount at Rs. 320,000. At the hearing of the appeal before the commissioner the assessor contended that the amount must be further reduced by a sum of Rs. 140,632, made up as follows :-

	Rs.
Net dividend paid in respect of" 1950	73,125
Income tax for 1951-19520	67,507
	140,632

The commissioner agreed with this contention and fixed the amount of the cash to be included in the computation of the capital employed in the business at Rs. 180,000. Upon an appeal by the company the Board of Review increased the amount by Rs. 190,000. The commissioner had included in the sum fixed by him a sum of Rs. 120,000 as the equivalent of 2 months' estate expenditure, which he held would be sufficient for the current requirements of the business. The Board increased this sum by Rs. 50,000, on the ground that " a prudent Tea Estate Co. would keep more than 2 months' costs of upkeep in ready cash, because unforeseeable contingencies like a slump, strike accompanied by v

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