JUDGMENT R.N. Pyne J. In this reference under section 256(1) of the Income tax Act, 1961, the following question of law said to arise out of the Tribunals' order dated May 6. 1966, has been referred for consideration of this Court: "Whether, on the facts and in the circumstances of the case, the amount of capital employed in the business within the - meaning of section 84(1) of the Income-tax Act, 1961 was correctly determined at Rs. 21,23,546/- or required to be further increased by the sum of Rs. 145,110/- under Rule 19(5) of the Income-tax Rules 1962 ?" 2. In this reference we are concerned with the assessment year 1962-63, the corresponding previous year being the calendar year 1961. The facts and circumstances of this case have been stated by the Tribunal in the statement of case submitted to the Court. The relevant facts may however, briefly, be stated. 3. The assessee manufactures yarn of different counts. During assessment of the assessee for the assessment year 1962-63 the Incometax Officer found that the assessee was entitled to the benefit of exemption from income-tax provided under section 84 (since omitted) of the Income tax Act, 1961 in respect of its newly established industrial undertakings section 84(1) confers on an assessee certain benefits of exemption from income-tax in respect of the profits of a newly established industrial undertaking. The said section reads as follows: "Save as otherwise hereinafter provided, income-tax shall not be payable by an assessee on so much of the profits or gains derived from any industrial undertaking or hotel to which this section applies as do not exceed six per cent per annum on the capital employed in the undertaking or hotel computed in the prescribed manner". 4. According to the assessee the amount of capital employed was Rs. 32,21,400/- and on that basis the assessee claimed relief under section 84(1) to the extent of Rs. 1, 93,284/- calculated at 6% on the said amount of capital employed. The Income-tax Officer, however, computed the amount of capital employed in the business of the assessee during the relevant assessment year at Rs. 21.23,545/- and held. that• as :against the business profit of Rs. 3,60,370/- relief under section 84 wpuld be restricted to 6% of Rs. 21,23,545/-, i.e., Rs. 1,27,412/- only. The Income-tax Officer, however, computed the amount of capital employed in the business of the assessee during the relevant assessment year at Rs. 21.23,545/- and held. that• as :against the business profit of Rs. 3,60,370/- relief under section 84 wpuld be restricted to 6% of Rs. 21,23,545/-, i.e., Rs. 1,27,412/- only. The relevant portion of the assessment order is as follows: Less: Rebate u/s 84 The assessee company has claimed the relief under this section to the extent of Rs. 1,93,284/- @ 6% on the amount of capital employed as calculated in a separate statement on Rs. 32,21,400/" This is wrong. On the following basis the capital employed is arrived at ap.d rebate @ 6% is allowed: W. D. V. of the assets as on l.1.61... ... 18,17,999/Add: Average cost of additions during the year: ... ...5,23,763/Non-depreciable assets at cost (land).... 40,000/- Other Assets As on 31.12.61 As on 1.1. 61 5,47,612/- 1,30,873/- Stock 5,51,267/- 19,433/- Advances 1,08,752/ 6,97,918/- Cash 46147/- 7,06,166/- 1404084 7,02,042/- 2 Debtors. As on 31.12. 61 4,90,940/- As on 1.1.61 1,38,038/- 6,28,978/- Average of 3,14,489/- 33,98,293/-6,28,978/- Less: Deductions. As on l.1.61 As on 31.12.61 Secured loans 9;09,166/- 9,93,052/ Unsecured loans 208/- 4,06,181/ Current 20,400/- 39,003/- Liabilities : 1,45,191/- 32,381/- 1,304/- 2,351/- 98/- 99/- 62/ - Total 10,76,429/- 14,73,067/- 12,74,748/- 2549496 2 Capital employed in business 21,23,545-” 5. The Income-tax Officer, accordingly, held that as against the business profit of Rs. 3,60,373/- relief under section 84(1) would be restricted to 6% of Rs. 21,23,545/- i.e. Rs. 1,27,412/- only. 6. In the appeal preference to the Appellate Assistant Commissioner of Income-tax against the said order of the Income-tax Officer the assessee submitted that the profits of the year amounting to Rs. 3,88,720/- (inclusive of tax provision of Rs. 98,500/-) should also be added to the average amount of capital employed in the business as laid down in Rule. 19(5) of the Income tax Rules 1962. The Appellate Assistant Commissioner however found that according to the method of computation followed by the Income-tax Officer, the profits earned by the assessee had already entered into the calculation and no further adjustment was necessary. The Appellate Assistant Commissioner in his order dated September 16, 1963 observed that: ''The records show that the I.T.O. has taken into consideration the entire assets of the appellant coy as at the end of the a/c year for computing the average eapital included in the business. The Appellate Assistant Commissioner in his order dated September 16, 1963 observed that: ''The records show that the I.T.O. has taken into consideration the entire assets of the appellant coy as at the end of the a/c year for computing the average eapital included in the business. The profits earned by the appellant company in the a/c year would necessarily be part and parcel of the assets held by the appellant coy at the end of the a/c year and as such the appellant's claim for a further adjustment for the profits earned in the a/c year does not arise." In that view of the matter the Assistant Commissioner 'dismissed the assesse's appeal. 7. On further appeal before the Tribunal the assessee contended that the sum of Rs. 3,84,720/- comprising Rs. 98,500/-, provision for Income-tax and Rs. 2,90.220/-, the net profit for the year, should be included for the purpose of ascertaining the average amount of capital employed in the business, as laid down in Rule 19(5) of the Income-tax Rules ] 962. The Tribunal, however, found that for arriving at the average capital employed during the year 1961, the Income-tax Officer took the written down value of the fixed assets as on January 1, 1961 and added thereto the average cost of additions during the year. The Income-tax Officer further took into account other assets including debtors balances both as on January 1, 1961 and as on December 31, 1961 and included in the computation of the average capital the average of these two figures. Thus according to the Tribunal the Income-tax Officer arrived at Rs. 33,98,293/- as representing the admitted value of the assets. Under Rule 19(3) borrowed moneys and current liabilities (including income tax and super tax) had to be debited and after taking these liabilities, the capital employed in the business was determined by the Income-tax Officer at Rs. 21,23,545/-. The Tribunal was of the opinion that the excess of assets over liabilities automatically included the profits during the year. According to the Tribunal Rule 19(5) merely provided that profits and losses should be deemed to have accrued at an even rate throughout the previous year and had resulted in the business and by the procedure adopted by the Income-tax Officer these provisions have been duly complied with. The relevant portion of the Tribunal's order may be set out. According to the Tribunal Rule 19(5) merely provided that profits and losses should be deemed to have accrued at an even rate throughout the previous year and had resulted in the business and by the procedure adopted by the Income-tax Officer these provisions have been duly complied with. The relevant portion of the Tribunal's order may be set out. "As we have already noted above, the entire assets as at close of the previous year was taken into account by the Income-tax' Officer. These assets were covered by the liabilities which have also been taken into account by the Income-tax Officer. The figure by which the assets exceed the liabilities has been taken by the Income-tax Officer as the capital of the business. This excess of assets over liabilities includes the provision for taxation and the net profit of the year which after adjusting for provision for proposed dividends has been taken to the reserve and surplus account in the profit and loss account. The provision for proposed dividends also figures on the liability side of the balance-sheet but has not been taken into calculation by the Income-tax Officer while making deductions for current liabilities. It would thus be seen that the two items referred to by the assessee have been duly taken into account by the Income-tax Officer while computing the assessee's capital employed in the business. According to Rule 19(5), for the purpose of ascertaining the average amount of capital employed in the business during any computation period, the profits or losses made in that period shall be deemed to have accrued at an even rate throughout the said period and to have resulted, as they accrued, in a corresponding, increase or decrease as the case may be, in the capital employed in the business. By working out average capital in the manner that he has done, the Income-tax Officer has ensured that the provisions of rule 19(5) have been duly complied with." The Tribunal, accordingly, dismissed the assessee's appeal. 8. At the time of hearing of the reference application under section 256(1) of the Income-tax Act 1961 the assessee did not press for the inclusion of the provision for taxation in the figure of net profit in so far as it affected the capital computation as according to the assessee the sum of Rs. 98,500/- was in the nature of tax liability. 98,500/- was in the nature of tax liability. According to the assessee the net profit for the year amounted to Rs. 2,90,220/- and therefore under Rule 19(5) Rs. 1,45,110/- should be regarded as the average increase in capital attributable to earning of profits during the previous year. It should however be noted that it is not disputed by the assessee that the figure of Rs. 21,23,545/- is the correct figure of average capital in accordance with the provisions of Rule 19(1), (2) and (3). According to the assessee even if the said sum of Rs. 1,45,110/- had entered into the working under the aforesaid sub-rules, still Rule - 19(5) authorises further or separate addition of the sum of Rs. 1,45,110/- to the average capital employed during 1961. 9. In this reference we are really concerned with the question of computation of the amount of capital employed under Rule 19 of the Income-tax Rules 1962. This question depends on the interpretation of Rule 19. There is no controversy between the parties regarding interpretation of sub-rule (l), (2), (3) or (4) of Rule 19. The controversy between the parties, as noted hereinbefore, is with regard to the interpretation of sub-rule (5) of the Rule 19. The question involved in this reference is a short one, but has an importance and consequences reaching beyond the limits of the particular case in which it has arisen. 10. Before we proceed further, we think, it is necessary to refer to Rule 19, which reads as follows: "19. The question involved in this reference is a short one, but has an importance and consequences reaching beyond the limits of the particular case in which it has arisen. 10. Before we proceed further, we think, it is necessary to refer to Rule 19, which reads as follows: "19. Computation of capital employed in an industrial undertaking or a 'hotel, (l) For the purposes of sectior1 84, the capital employed in an undertaking or a hotel 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 ; 11. 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 purposes 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. (2) Where the price of any asset has been satisfied otherwise than in cash, the then value of the consideration actually given for the asset shall be treated as the price at which the asset was acquired. (2) Where the price of any asset has been satisfied otherwise than in cash, the then value of the consideration actually given for the asset shall be treated as the price at which the asset was acquired. (3) Any borrowed money and debt due by the person carrying on the business shall be deducted and in particular there shall be deducted any debts incurred in respect of the business for income-tax and super-tax or for advance payments due under any provision of the Act : 12. Provided that any such debt for income-tax or super-tax shall, for the purpose of this sub-rule, be deemed to have become due-. (a) in the case of income-tax and super-tax on the last day of the period of time within which the tax is payable under section 220 : (b) in the case of any advance payment due under any provision of the Act or of any provisional tax paid under section 141 on the date on which, under the provisions of section 211 or section 212 or section 213 or section 220, as the case may be, the payment first became due.' (4) Any investments the income from which is not to be taken into account in computing the profits of the business and any moneys not required for the purposes of the business, shall be left out of account, but where any investments in the beneficial ownership of the person carrying on the business are so left out of account, the sum (if any) to be deducted under sub - rule (1) in respect of borrowed money were reduced by the value of those investments. (5) For the purpose of ascertaining the average amount of capital employed in a business during any computation period, the profits or losses made in that period shall, except so far as the contrary is shown, be deemed(a) to have accrued at an even rate throughout the said period; and (b) to have resulted, as they accrued, in a corresponding increase or decrease, as the case may be, in the capital employed in the business. (6) In this rule,- (i) "average costs" in relation to any asset means such proportion of the actual cost thereof as the number of days of the computation period during which such asset is used in the business bears to the total number of the days comprised in the said period: (ii) "computation period" means the period for which the profits and gains of the undertaking or hotel are computed under sections 28 to 43 ; (iii) "depreciation" means the allowance admissible under clause (i) or clause (ii) or clauses (iv) of sub-section (1) of section 32 : (iv) "written-down-value" means the written-down-value computed under sub-section (6) of the section 43 as if for the words "previous year" the words "computation period" were submitted." 13. Learned Counsel for the assessee submitted that for the purpose of conferring benefit to an assessee under section 84 of the Income-tax Act 1961 computation of the amount of capital employed should be made in the manner prescribed in Rule 19 of the Income-tax Rules 1962, hereafter referred to as "the Rules". According to the learned counsel such computation should be made in accordance with the various sub-rules of Rule 19. The learned counsel further contended that in making the computation benefit of sub-rule (5) should be given over and above what is conferred by the earlier sub-rules, i. e. sub-rules (1) to (4), of the said Rule 19, for according to the learned counsel if the benefits given under or the matters provided in sub-rule (5) were also provided in the earlier sub-rules i. e., (1) to (4), then there was no purpose behind making an independent sub-rule viz., sub-rule (5). It was the contention of the learned counsel that while computing the amount of capital employed under Rule 19 effect will have to be given to sub-rule (5), which according to the learned counsel is an independent sub-rule, and in doing so average profit or average loss made during the computation period should be added to or deducted from the amount of capital employed determined in accordance with sub-rules (1) to (4) notwithstanding the fact that such profit or loss had already entered in the calculation made under sub-rules (1) to (4). The learned counsel further contended that if the Court considers that the meaning of sub-rule (5) is not clear and definite then following the well established cannons of construction the Court should adopt such construction that would be favourable to the assessee. According to the learned counsel the purpose behind sub-rule (5) is to confer more benefit to the new undertakings so as to increase their incentive and this should be remembered while interpreting the said sub-rule. Therefore, according to the learned counsel in the instant case for correctly determining the amount of capital employed in the assessee's business for the purpose of section 84 (1) the sum of Rs. 1,45,110/- being the average profit of the year should be added, in view of sub-rule (5), to the figure found by the Tribunal viz., Rs. 21,23,545/- notwithstanding the fact that the profit of the year had entered in the calculation in arriving at the said amount. 14. The learned counsel for the revenue however contended that in computing the amount of capital employed under Rule 19 following assets are to be taken into account and following deduction are to be made. Assets : (i) Assets acquired by purchase and liable to depreciation e.g., building, machinery, furniture, etc. (ii) Assets acquired by purchase and not entitled to depreciation e.g., goodwill, investments, consumable stores, raw materials, copyright, stock-in-trade, etc. (iii) Assets being debts due to the assessee e.g., sundry debts and advances. (iv) Any assets not acquired by purchase and are not debts due to the assessee e.g., a cash-in-hand or in bank, security or other deposits, manufactured goods, work-in-progress, etc. Deductions: (i) Any borrowed money and debts due by the person carrying on business. (ii) Any debt incurred in respect of the business for tax liabilities. 15. According to the learned counsel sub-rule (5) does not contemplate a separate addition or deduction in all cases. He further contended that when the amount of capital employed is computed in accordance with sub-rules (1) to (4) of Rule 19 with reference to all the assets and liabilities of the business, profits and losses, which remained invested or debited in the business, would automatically be reflected in the assets of the business. He further contended that when the amount of capital employed is computed in accordance with sub-rules (1) to (4) of Rule 19 with reference to all the assets and liabilities of the business, profits and losses, which remained invested or debited in the business, would automatically be reflected in the assets of the business. According to him sub-rule (5) applies only in those cases where information regarding the current assets and liabilities are absent and the capital employed is worked out first by ascertaining the capital employed at the commencement of the computation period and then adding thereto or deducting therefrom the capital introduced or moneys taken out of the business including profit or loss of the computation period. It was the contention of the learned counsel for the revenue that inasmuch as in the instant case in computing the amount of capital employed under sub-rule (1) to (4) the benefit conferred by sub-rule (5) had already been taken into account the assessee was not enitled to have the average profit of the year (i. e. Rs. 1,45,110/-) again to be added to the amount of the capital employed determined by the Income-tax Officer. 16. Under sub-rule (I) of Rule 19 capital employed in an undertaking shall be taken to be : (a) Assets acquired by purchase and entitled to depreciation. (b) Assets acquired by purchase and not entitled to depreciation. (c) Assets being debts' due to the assessee. (d) Any other assets. 17. Therefore, the amount of capital employed comprises four kinds of assets as stated above. But under sub-rule (3) certain deductions will have to be made and under sub-rule (4) certain investment and money should not be taken into account. Regarding assets mentioned in sub-rule (I) (a) (ii) and (1) (b) (ii) their average cost will have to be taken and in Rule 19 (6) (i) it is stated what 'average cost' means. According to the proviso to Rule 19 (6) (d) in case of other assets average value should be taken into account and the average value should be calculated in the same manner as the 'average cost'. According to the proviso to Rule 19 (6) (d) in case of other assets average value should be taken into account and the average value should be calculated in the same manner as the 'average cost'. When for determining the amount of capital employed average cost or average value of the assets is to be ascertained or is to be taken into account or in other words, average amount of capital employed is to be ascertained or is to be taken into account effect will have to be given to sub-rule (5) of Rule 19. Sub-rule (5) provides that except so far as contrary is shown profits or losses made during the computation period shall be deemed (a) to have accrued at an even rate throughout the computation period and (b) to have resulted, as they accrued in a corresponding increase or decrease, as the case may be, in the capital employed in a business. This deeming provision in sub-rule (5) will apply unless contrary is shown. Therefore, the question of addition of profit or deduction of loss under sub-rule (5) will arise unless contrary is shown. Therefore, if in a particular case from the method of calculation adopted for computation of the amount of capital employed it appears that profit or loss element has already been taken into account there should not be any duplication; that is to say, no further addition or deduction should be made on that account. This would be the case when computation is made by taking into account the current assets and current liabilities because here profit and loss of the business are reflected in the current assets and the current liabilities. If, however, on the contrary, due to non-availability of the requisite materials, that is, due to absence of information regarding current assets and current liabilities in the method of calculation adopted profit or loss element does not enter into the calculation profit or loss made during the computation period shall be added or deducted as the case may be under sub-rule (5) resulting in the increase or decrease in the amount of capital employed. In the aforesaid view of the matter we are unable to accept the submissions of the learned counsel for the assessee stated hereinbefore. In the aforesaid view of the matter we are unable to accept the submissions of the learned counsel for the assessee stated hereinbefore. In the instant case, as will appear from the Tribunal's order set out hereinbefore, in making the computation the Income-tax Officer has taken into account the current assets and the current liabilities of the business and. therefore, the profit of the year has been taken into consideration and has entered in the account. Therefore, in view of the specific exception to the deeming clause in sub-rule (5) provisions of clauses (a) and (b) of the said sub-rule will not apply in the instant case. In the aforesaid view of the matter we are of the opinion that no further addition should be made on account of average profit under sub-rule (5) as contended by the assessee. In our view because of the particular method of calculation followed by the Income-tax Officer in the instant case, viz. bi taking into account the current assets and the current liabilities of the business profit of the year is included in the sum of Rs. 21,23,545/- being the amount of capital employed computed by the Income-tax Officer in the instant case and no further addition of profit should be made as urged by the assessee. We are, therefore, of the opinion that in the instant case the amount of capital employed has been correctly determined at Rs. 21,23,545/- and no further addition of Rs. 1,45,110/- as urged by the assessee should be made and we answer the question referred accordingly and in favour of the revenue. In the facts and circumstances of this case we make no order as to costs. A.N. Sen, J. I agree.