Decided on August 25,1970



P.B.Mukharji, C.J. - (1.) The following question is raised in this income-tax reference under Section 66(1) of the Indian Income-tax Act, 1922, for an answer : "Whether, on the facts and in the circumstances of the case, in arriving at the written down value for the purpose of computing the profits of the assessee under the second proviso to Section 10(2)(vii) of the Indian Income-tax Act, 1922, the sum of Rs. 61,553 which had been allowed to the assessee as the initial depreciation under Section 10(2)(vi) of the said Act was liable to be excluded?''
(2.) The facts giving rise to this question are as follows : The assessee; Jasrup Baijnath Bahety & Sons (P.) Ltd., is a private limited company which owned an electricity generating plant at Khandwa, Madhya Pradesh. The assessment year under reference is 1956-57 for which the relevant previous year is the calendar year ending on the 31st December, 1955. During the relevant accounting year the assessee carried on the business up to 31st March, 1955. Thereafter, according to agreement with the Madhya Pradesh State Electricity Board the assessee sold most of its plant and machinery as installed at the generating centre for a total sum of Rs. 3,27,689. In the relevant assessment year the question arose what should be considered as the assessee-company's profits within the meaning of the second proviso to Section 10(2)(vii) of the Act. The Income-tax Officer determined the same at Rs. 1,53,569. The assessee was aggrieved by the order of the Income-tax Officer and preferred an appeal before the Appellate Assistant Commissioner. The Income-tax Officer found that the assessee had derived profits assessable under Section 10(2)(vii) of the Income-tax Act on the sale of its plant and machinery in respect of which the depreciation has been allowed, The actual question raised in the reference was not argued expressly before the Income-tax Officer. This particular question in fact cropped up before the Appellate Assistant Commissioner. It will be, therefore, appropriate to set out here the reasons and facts as given by the Appellate Assistant Commissioner in his order.
(3.) The order of the Appellate Assistant Commissioner makes the following points clear. The sale price that has to be considered in determining the profit under Section 10(2)(vii) would be Rs. 3,20,000. There is no dispute regarding the correctness of the written down value figures arrived at by the Income-tax Officer at Rs. 2,06,767 and the retention of machinery thereof by the appellant at Rs. 32,647 The Appellate Assistant Commissioner then points out that the dispute is with regard to the initial depreciation which the Income-tax Officer took into consideration while working out the written down value of the machinery sold. That is the crux of this controversy. The Appellate Assistant Commissioner then proceeds to say that the written down value determined by the Income-tax Officer at Rs 2,06,767 is after considering the initial depreciation that has been allowed to the appellant at Rs. 61,553 for different years from 1949-50 to 1955-56. It was contended before the Appellate Assistant Commissioner that the initial depreciation could not go to reduce the value of the asset in view of the wording used in Section 10(2)(vi) and the definition of the "written down value" given in that section. The Appellate Assistant Commissioner was impressed by the words "which shall, however, not be deduttible in determining the written down value for the purpose of this clause [section 10(2)(vi)]". He came to the conclusion that it was only for the purpose of that clause that initial depreciation does not go to reduce the value of the asset but for all other purposes, i.e., for determining the profit or loss under Section 10(2)(vii) the initial depreciation stands on the same footing as any other allowances under Section 10(2)(vi). On that ground and on that reasoning the Appellate Assistant Commissioner dismissed the appeal of the assessee on this point.;

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