Dipak Kumar Sen, J.
1. The facts admitted and/or found in this reference under Section 66(1) of the Indian Income-tax Act, 1922, at the instance of the Commissioner of Income-tax, West Bengal-I, are as follows:
The assessee is carrying on business as freight and steamship agents. In the assessment year in question, namely, 1955-56 (the corresponding previous year being the calendar year 1954) it was found that the reserves and accumulated profits of the assessee totalled Rs. 7,02,679-13-3. The cost of the fixed and other assets of the company were found to aggregate to Rs. 8,12,492-1-8 and the same consisted of, (a) land and buildings, (b) furniture and fittings, (c) typewriters and duplicators, and (d) motor cars and cycles.
2. The assessee in the year concerned was the managing agent of another company named The India Steamship Co. Ltd. and the assessee held 94,000 ordinary shares of Rs. 10 each in the said India Steamship Co. Ltd.
3. Actual cost of the said shares came to Rs. 6,91,373-15-0 in the balance-sheet of the assessee as on the 31st December, 1954.
4. In the assessment year in question the assessee had declared a dividend of Rs. 2,75,000.
5. In proceedings under Section 23 A of the Indian Income-tax Act, 1922, the Income-tax Officer calculated the income-tax and the corporation tax at Rs. 3,35,069 93 and the Income-tax Officer on the figures as above found that the said Section 23A was applicable in the case of the assessee and did not give the rebate at the rate of Re. 0-1-0 in the rupee which was available under Part I-B of the First Schedule to the Finance Act of 1955 which would have been allowable if it was held that Section 23A was not applicable.
6. The assessee appealed to the Appellate Assistant Commissioner and contended that the rebate under Part I-B of the First Schedule to the Finance Act of 1955 should have been allowed as Section 23A could not have been applied in the case of the assessee in the assessment year concerned. It was contended that in working out the actual cost of the fixed assets the cost of investment in the said shares of the India Steamship Co. Ltd. should have been taken into consideration. The assessee was the managing agent of the India Steamship Co. Ltd. and it was through the said managed company that the assessee was earning the major part of its income. It was contended, therefore, that in the hands of the assessee the investment in the shares in India Steamship Co. Ltd. should be considered to be part of the fixed assets of the assessee.
7. The Appellate Assistant Commissioner did not agree that the investment in these shares constituted fixed assets. He held that the investment in the shares could not be given the status of fixed assets like land and buildings, furniture and fittings. He also found that the investment in the said shares could not be for retaining controlling interest of the managed company by the assessee inasmuch as the said investment fluctuated during the course of years. The appeal of the assessee was rejected and the decision of the Income-tax Officer was confirmed.
8. In further appeal before the Appellate Tribunal the same contentions were reiterated by the assessee. It was not in dispute before the Tribunal that if the said shares of the steamship company were held to be fixed assets and were included in computing the fixed assets of the assessee, then the accumulated profits along with the reserves would not exceed the paid up capital and the fixed assets, Section 23A would not be applicable to the assessee.
9. The Tribunal considered the meaning of the expression 'fixed assets'. It relied on the statement of the law contained in Halsbury's Laws of England, 3rd edition, paragraph 769, in volume VI, on fixed capital as follows :
'769. Fixed capital.--Part of the capital of a company may consist of fixed capital and part of circulating capital. By fixed capital is meant that capital which a company retains in the shape of assets upon which the subscribed capital has been expended and which assets either themselves produce income independently of any further action by the company, or, being retained by the company, are made use of to produce income or gain profits. Thus, in the case of a manufacturing company fixed capital is capital which is expended in acquiring or erecting works with machinery and plant; in the case of a mining company it is capital which is expended in acquiring and fitting the mine for working; and in the case of an investment company which does not traffic in investments it is capital which is expended in acquiring stocks, shares and securities. Goodwill is also part of the fixed capital.'
10. The Tribunal also considered the observations in the well-known Treatise on Accountancy by Pickles, 3rd edition, at page 127, where it was stated as follows:
'The question as to whether investments are fixed or current assets is sometimes difficult to determine, but, generally speaking, investments in affiliated companies are classified as fixed assets. The short-term investments, however, may be regarded as current assets as they are merely a substitute for cash.'
11. The Tribunal found that the shares held by the assessee in the steamship company should be deemed to be fixed capital in the bands of the assessee as it satisfied the tests laid down both by Halsbury and Pickles. The Tribunal found that the expressions 'fixed capital' and 'fixed assets' were inter-changeable terms, as fixed capital was employed in fixed assets.
12. The Tribunal rejected the contentions of the revenue that these shares should not be regarded as fixed assets as they have increased and/or decreased from year to year, for the reason that even in the case of other admitted fixed assets like land and buildings or machinery or plant there could be addition and/or depletion.
13. The Tribunal proceeded on the undisputed basis that the shares held by the assessee were only investments and not stock-in-trade.'
14. On the reasons as above the Tribunal accepted the contentions of the assessee and allowed the appeal.
15. From this order of the Tribunal the following question has been referred to us;
'Whether, on the facts and in the circumstances of the case, the shares held by the assessee in India Steamship Co. Ltd., the managed company, formed part of its fixed assets so that Section 23 A could not be made applicable to the company for the assessment year 1955-56 ?'
16. A similar question was considered by this Bench in Income-tax Reference No. 377 of 1969 [entitled Commissioner of Income-tax v. Bird & Co. Private Ltd. : 108ITR253(Cal) ]. It was held in that case that goodwill of a company constituted a fixed asset and the observations of Halsbury at page 397 of volume 6, 3rd edition, were considered and approved.
17. Reliance was also placed on the well-known treatise of Buckley on the Companies Acts, 13th edition, at page 967, as follows :
'The Act (The Companies Act, 1948, Sch. VIII) contains no definition of 'fixed assets' or 'current assets', but these terms must be intended to cover every kind of asset and to be mutally exclusive, so that every kind of asset which is not 'fixed' is 'current' and vice versa. An indication of the nature of ' fixed assets' may be gained from para. 5 and of ' current assets' from para. 11(7). Semble, any asset, such as stock-in-trade, cash, expendable stores and book debts, liable to be realised, expended or turned over in the ordinary course of the company's business is a * current asset', whereas assets of a capital nature, such as the company's premises, plant, machinery, investments and goodwill are fixed assets,'
18. The court also considered the statutory form of the balance-sheet provided by the Companies Act, 1956, in Part I of Schedule VI thereto. In this form under the heading 'Assets' a sub-heading 'fixed assets' was provided.
19. It is also to be noted that, in the instant case, it has been found as a fact that the said shares were held by the assessee by way of investments and not as stock-in-trade and the finding has not been challenged as being perverse or based on no evidence. In fact, before the Tribunal this was the undisputed position.
20. Mr. B. L. Pal, learned counsel for the revenue, has contended that the assessee not being an investment company, the shares held by it in the managed company could not be regarded as investments and, therefore, the same could not be treated as fixed assets. He contended that the position was really governed by the statement of law in Halsbury (Halsbury's Laws of England) in the same volume at page 398 in paragraph 770 where circulating capital was defined. This definition is as1 follows ;
'770. Circulating capital.--Circulating capital is that part of the subscribed capital of a company used or intended to be used by being temporarily parted with and circulated in business in the form of money, goods or other assets, and which, or the proceeds of which, is intended to return to the company with increment and to be used again and to return again with some accretion. Thus, the raw product which a manufacturing company buys with a view to making it up into a finished product is circulating capital, and so are the shares, stocks, and securities acquired by a company carrying on the business of trafficking in investments, or the stock-in-trade of a manufacturing company.'
21. On the strength of this passage Mr. Pal contended that the assessee in the instant case not being an investment company should be held to be carrying on the business of trafficking in investments and the securities should be treated as circulating capital and not 'fixed assets'.
22. The contentions of Mr. Pal do not appear to us to be of much substance. The distinction that has to be made in the instant case is between fixed assets and current assets and not between fixed capital and circulating capital. The statement of law in Buckley (Buckley on the Companies Acts), noted above, is clear on the point. While distinguishing between fixed assets and current assets no distinction has been made by the learned author between an investment company and an ordinary company.
23. Moreover, the same distinction is confirmed by the statutory form providedin the Companies Act, 1956, and whatever be the nature of the companythe said form would govern its balance-sheet.
24. In this view it appears to us that the shares of the steamship company held by the assessee would constitute fixed assets in the hands of the assessee within the meaning of Explanation 2(iv)(a) of Section 23A of the Indian Income-tax Act, 1922, and accordingly we answer the question referred to us in the affirmative and in favour of the assessee. There will be no order as to costs.
25. I agree.