S. Ranganathan, J.:— The Income-tax Appellate Tribunal, Delhi has referred two questions for our decision in this matter which arise out of the assessment ton income tax of M/s. Gedore Tools (India) Pvt. Ltd. for the assessment year 1966-67, the corresponding previous year for which was the hear ended on 30-6-1965.

2. The controversy in the reference raises a question of the interpretation of Rule 19 of the Income-tax Rules, 1962. It may be convenient before setting out the facts to refer to the statutory provisions. Section 84 of the Income-tax Act, 1961 as it stood at the relevant time and in so far as it is relevant for our present purposes provided that income tax was not payable by an assessee on so much of the profits and gains derived from any industrial undertaking to which the section applied as did not exceed 6 per cent per annum on the capital employed in such undertaking computed in the prescribed manner. The computation of the capital for the purposes of this section was provided for by Rule 19 of the Income-tax Rules, 1962. This rule has six sub-clauses but for our purposes it is sufficient if the first sub-clauses but for our purposes it is sufficient if the first sub-clause is set out. Rule 19(1) at the relevant time read as follows:—

“19. Computation of capital employed in an industrial undertaking or a hotel —(1) For the purposes of Section 84, the capital employed in an undertaking to which the said Section applies shall be taken to be—

(a) in the case of assets acquired by purchase and entitled to depreciation—

(i) if they have been acquired before the computation period, their written down value on the commencing date of the said period:

(ii) if they have been acquired on or after the commencing date of the computation period, their average cost during the said period;

(b) in the case of assets acquired by purchase and not entitled to depreciation—

(i) if they have been acquired before the computation period, their actual cost to the assessee;

(ii) if they have been acquired on or after the commencing date of the computation period, their average cost during the said period;

(c) in the case of assets being debts due to the person carrying on the business, the nominal amounts of those debts;

(d) in the case of any other assets, the value of the assets when they became assets of the business;

Provided that if any such asset has been acquired within the computation period, only the average of such value shall be taken in the same manner as average cost is to be computed.

Explanation—For the purpose of clauses (a) and (b) of this sub-rule, the value of any building, machinery or plant or any part thereof which having been previously used for any purpose is transferred to the undertaking or hotel at the time of its formation, shall not be taken into account for computing the capital employed in cases to which the Explanation to Section 84 applies.”

The questions in this reference are regarding the method of evaluation of the debts due to the assessee for the purpose of above capital computation.

3. For the assessment year 1966-67 the Income-tax Officer originally computed the assessee's total income at a figure of about Rs 36,20,196 and also noted in the order that the assessee was entitled to relief under Section 84 in respect of a sum of Rs 5,71,318. From annexure II to the order of Income tax Officer which contains the capital computation it is seen that the Income-tax Officer took the figure of debts due to the company as Rs 18,25,606. This was the value of sundry debtors and other loans and advances due to the assessee as on the last day of the accounting year i.e as on 30th June, 1965.

4. Subsequently, the assessment was re-opened under Section 147(b) as a result of an audit note by the internal auditors of the department. In the re-assessment the Income-tax Officer restricted the amount of relief under Section 84 to the sum of Rs 4,37,740. This was due to two reasons with one of which we are not concerned here. So far as we are concerned it is material to note that the Income-tax Officer revised the capital computation by taking the value of debts due to the assessee company at Rs 14,40,998 in place of Rs 18,25,606 taken earlier. The Income-tax Officer found that the total debts due to the company as at the commencement of the accounting year, i.e as on 1-7-1964 was Rs 10,56,391. The figure of such debts as at the end of the accounting year, as already mentioned, was Rs 18,25,606. According to the Income-tax Officer it was the average of these two figures that was liable to be taken into account as part of the assets under Rule 19 and that a mistake had been committed in the original assessment by including as part of the assets the debt of Rs 18,25,606 due to the assessee company. The average of the two figures mentioned above was Rs 14,40,998 and it is this figure that the Income-tax Officer substituted for the figure Rs 18,25,606 taken into account earlier.

“The appellate Assistant Commissioner of Income-tax has directed that the nominal value of the debts should be taken as at the end of the computation period. The Income-tax Officer had taken the average value of the debts as at the beginning and as at the end of the computation period. The departmental Representative contended that proviso to clause (1) applied not only to Sub-clause (d) of clause (1) but also to Sub-clauses (a), (b) and (c). We are unable to accept this contention. The words “such assets” referred to in the beginning of the proviso clearly refer to any other assets referred to in Sub-clause (d). Moreover, clauses (a) and (b) do not require clarification about the manner in which the average cost is to be computed because that is laid down in Sub-clause (a) and (b) read with clause 6(i). Further the proviso refers to “average of such value” and this “average of such value” is relevant only to Sub-clause (d) because in other Sub-clauses, namely, (a), (b) and (c) it is not the value of the asset or the nominal amount of the debts. We therefore, endorse the conclusion of the Appellate Assistant Commissioner that proviso to clause (a) is relevant only for application of Sub-clause (d) of clause (1). The question whether the nominal value of the debts is to be taken as at the beginning or at the end of the computation period was not the issue before the Appellate Assistant Commissioner and was not raised by the Department even in the fresh ground of appeal raised before us.

6. The Commissioner of Income-tax is aggrieved by the order of the Tribunal and on his application the two following questions have been referred to us:

“1. Whether the Tribunal was correct in its interpretation of Rule 19(1) of the Income-tax Rules in holding that the proviso to Rule 19(1) applied to Rules 19(1) (d) and not to Rules 19(1) (a) to 19(1) (c) of the said Rules.

2. Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the Income-tax Officer was not justified in taking the average value of the debts as at the beginning and as at the end of the computation period?”

7. We are of opinion that the view taken by the Tribunal, that the proviso in Rule 19(1) is a proviso only to clause (d) thereof and not to all the four clauses (a), (b), (c) and (d), is clearly correct. The purpose of the proviso is to state that if an asset the value of which has to be taken into account in the capital computation had been acquired during the computation period its value should be taken not at its value when it became an asset of the business but at an average value to be arrived at in the same manner as the average cost was arrived at under sub-rule (6) for assets covered by clauses (a) & (b). So far as the assets referred to in clause (a) and (b) are concerned, the same effect has already been achieved by their respective language, for sub-clause (ii) of each of these clauses lays down that in the case of assets, whether entitled to depreciation or not acquired by purchase during the computation period, the value should be taken at the average cost worked out in accordance with sub-rule (6). There is, therefore, neither necessity or justification for construing the proviso at the end of sub-rule(1) as applicable to clauses (a) to (d) or only to clause (d). Since, for the reasons above mentioned, the proviso can have no reference to clauses (a) and (b) it follows that it can have no reference to clause (c) either.

8. The above consideration apart we think that, even otherwise, the proviso is not referable to clause (c) although the word ‘assets’ is used in clause (c) also. We say so having regard to the word “value” and “acquired” used in the proviso. The word “value” is not relatable to debts due to the person carrying on the business for clause (c) directs them to be taken at their nominal amounts and it is only where the “value” of an asset is to be taken that the question of working out the “average of such value” in terms of the proviso can arise. So also, the use of the word “acquired” while fully meaningful in the context of the assets referred to in clause (a), (b) and (d) is inappropriate in relation to ‘debts’. This is a second reason why the proviso cannot be construed as applicable to clause (c).

9. Again, if clause (d) is perused, it will be seen that if first lays down the general principle that, in the case of assets dealt with by it, the value of the assets when they become the assets of the business is to be taken into account. But then a question might arise as to what was to be done in cases where the assets came to be acquired during the computation period and hence the need for the proviso. It will be seen that this sequence of logic will not be relevant for purposes of clause (c). Clause (d) directs that debts should be taken at their nominal value the seems to indicate that the debts as on some particular date should be taken though it is not clear, as the Tribunal has pointed out, whether the debts to be taken for the purpose of this clause are those which remain due to the assessee as on the first day of the accounting period or those which remain outstanding as on the last day. But in either even there is no scope or necessity for working out an average. The necessity of working out an average can arise only, if the term ‘debts due’ in clause (c) is interpreted as referring to debts due to the assessee “during the previous year” and as requiring a consideration of all the debts — those outstanding at the commencement of the year as well as those which have arisen subsequently. Thus construing the words “debts due”, according to the department, the debt being an asset its nominal value should be taken if it exists prior to the commencement of the accounting period. But if it is a loan taken during the accounting year the funds have been utilised in the business, a proportionate value should be taken in the manner outlined in sub-rule (4). This construction will involve reading so may words into the rule which do not find a place there. The legislature was fully conscious of the distinction between assets acquired prior to and those acquired after the commencement of the accounting period. It has divided assets into four categories: (a) acquired by purchase and entitled to depreciation; (b) acquired by purchase and not entitled to depreciation; (c) debts due to the assessee; and (d) any other assets. Having done this, it has specifically stated, in regard to three of the categories, that in averaging is called for but it has specifically refrained from saying any such thing in regard to clause (c). If the legislature had intended that all the categories including debts should also be averaged, it would have cast all the four clauses on the same pattern — either all of them would have contained two sub-clauses (i) and (ii) as in clauses (a) and (b) or all the them would have been general like clause (c) with the proviso covering all of them. The proviso could have become necessary in clause (d) only because the averaging rule — applying to clauses (a) and (b) —was not to be applicable to clause (c).

10. At the time of hearing, however a question was mooted whether, even without reading the proviso into clause (c) an averaging of the debts also could be read as implicit in Section 84 read with Rule 19. Section 84, as already mentioned, grants relief in respect of 6% per annum of the capital employed in the undertaking. According to this approach, this means the capital employed during the computation period and involves in itself the concept of an averaging of the capital. Any relief to be granted under Section 84 can only be proportionate to the period for which each item of asset comprised in the capital was employed in the business and that is why clause (c) does not mention any date as on which the outstanding debts are to be considered. Thus, it could be said that the concept of averaging is in-built into the section itself and that while clauses (a), (b) and (d) make it clear such a limitation should be read as implicit even in clause (c). This is no doubt a plausible suggestion but after deep consideration we think that it cannot be accepted. The section itself no doubt contemplates the percentage of relief being toned down or reduced proportionately to the period of working of the undertaking. But it will be too much to read into it a concept of averaging of the value of every item of asset employed merely because such asset comes into the business during the accounting period. If that in-built concept were inn the section itself it was unnecessary for the rule to elaborately set down the process of averaging specifically in clauses (a), (b) and (d) and in regard to the quantum of profits in sub-rule (5). Again, in regard to additions made to tangible assets during the previous year, there is no specific provision for averaging. So also, if there is any loss of assets during the year, no adjustment is contemplated. For instance, in the case of an asset acquired by purchase and entitled to depreciation its value will be taken at the written down value as on the first date of the accounting period if the asset had been acquired before the computation period even though substantial additions might have been made to the asset during the previous year or it might have been lost or destroyed inn the course of the year. Thirdly, the position regarding debts, unlike in regard to other assets, can be widely fluctuating from time to time and the process of averaging in the manner referred to in sub-rule (6) will be difficult. These are some reasons which indicate that it could not have been the purpose of the rule to introduce too many refinements into the computation of capital and that the process of averaging was intended only to be restricted to tangible items to specific assets acquired during the computation period. Having regard to all these considerations we are reluctant to extend, merely on the basis of a general implication, the concept of averaging into the structure of clause (e) of sub-rule (1).

11. We, therefore, agree with the view taken by the Tribunal and we answer the question referred to us in the affirmative and in favour of the assessee. We, however, do not think that this is a case in which any costs should be awarded. We therefore, make no order as to costs.

S.V Reference answered in the affirmative