- (1.) The appellant is a Hindu undivided family carrying on business at Jaora. It was a branch of a larger joint Hindu family composed of two branches - one was Govindram and the members of his family and the other was Bachhulal and the members of his family. In the year 1942 there was a partition suit between the said two branches and under the decree made therein each item of the property was put up for sale by competitive bidding. One of the items of the said property, the sugar factory at Jaora, was knocked down in favour of Govindram for a sum of Rs.34 lakhs. After all the items of the property were sold to one or other of the parties, final adjustments were made by cash payment. After the said partition Govindram and the members of his branch of the family continued to run the factory. For the assessment year 1950-51 the Income-tax Officer, Ratlam, assessed the appellant in respect of the income from the said factory. The appellant contended that it was entitled to depreciation as provided under S. 10(2)(vi) of the Income-tax Act, 1922, hereinafter called the Act, on the said amount of Rs. 34 lakhs, being the amount for which it purchased the factory in the auction that was held pursuant to the partition decree. The Income-tax Officer and, on appeal the Appellant Assistant Commissioner rejected that contention and held that the value to be adopted for the purpose of depreciation would be the original cost of the said factory to the larger joint family. On a further appeal, the Income-tax Appellate Tribunal held that so far as the 10/16th share in the factory which belonged to the appellant was concerned the cost to the appellant was the original cost to the larger branch; and so far as the 6/16th share of Bachhulal's branch in the said factory was concerned the original cost was the amount for which the appellant's branch purchased the 6/16th share of the other branch, i.e., Rs.12,75,000. The following question was referred by the Tribunal to the High Court of Madhya Pradesh. "Whether on the facts and in the circumstances of this case, the assessee Hindu Undivided Family is entitled to claim depreciation in respect of the assets of the old Hindu Undivided Family on the basis of the original cost to the family or on the basis of the valuation at which the assessee took over the assets." The High Court held that the depreciation allowance should be computed on the basis of the original cost to the larger joint family and not on the basis of the valuation at which the assessee took over the assets. The assessee, by certificate granted by the High Court, has preferred the present appeal to this Court against that order.
(2.) The only question that arises in this appeal is whether the depreciation allowance should be computed in respect of the 10/16th share in the factory on the basis of the original cost to the larger joint family or on the basis of the valuation at which the assessee took over the factory. The answer to this question turns upon the relevant provisions of the Act and then read: Section 10(2): Such profits or gains shall be computed after making the following allowances namely: (vi) in respect of depreciation of such buildings, machinery, plant or furniture being the property of the assessee, a sum equivalent, where the assets are ships other than ships ordinarily plying on inland waters, to such percentage on the original cost thereof to the assessee as may in any case or class of cases be prescribed and in any other case, to such percentage on the written down value thereof as may in any case or class of cases be prescribed: x x x x x x Section 10(5) of the Act defines "written down value" thus: "'written down value' means- (a) in the case of assets acquired in the previous year, the actual cost to the assessee; x x x x x (b) in the case of assets acquired before the previous year the actual cost to the assessee less all depreciation actually allowed to him under this Act or any Act repealed thereby, or under executive orders issued when the Indian Income-tax Act, 1886 (II of 1886) was in force". It is not disputed that no previous depreciation was allowed under any Act repealed by the Indian Income-tax Act, 1922, or under any executive order issued under the Indian Income-tax Act, 1886. Therefore, the appellant would be entitled to depreciation allowance on the original cost to it of the factory. What is the original cost of the 10/16th share in the factory to the appellant Two expressions in cl. (vi) of sub-section (2) of S. 10 give the clue to the answer and they are, (i) "being the property of the assessee", and (ii) "the original cost thereof". Therefore, depreciation is given in respect of property of an assessee on the original cost of the said property to him. The factory is the property of the assessee. What was the original cost of the property to the assessee Admittedly Govindram purchased it in the auction for Rs. 34 lakhs. Ordinarily that would be the cost of the factory to the assessee. It was conceded that it would be so if a third party had purchased it. But as the auction was only a step in the partitioning of the property of the larger family among the branches composing it, Govindram did not purchase it but only got it in the partition. It was then contended that partition did not involve any conveyance or transfer, but it was only a process in and by which joint enjoyment was transformed into an enjoyment in severalty and that, therefore, the appellant did not get any new title to the factory or at any rate to the 10/16th share therein, but its title was traceable to the ownership of the larger joint family. On the said reasoning it was argued that the original cost of the factory to the larger joint family was the cost to the assessee within the meaning of the said provisions.
(3.) XX XX XX;