- (1.) This appeal by special leave is directed against the judgment of the High Court of Delhi disposing of a reference made to it by the Income-tax Appellate Tribunal on the following question : "Whether on the facts and in the circumstances of the case the sum of Rupees 24,252/- is an item taxable in the previous year under the provisions of Section 10 (2) (vii) - The appellant is a partnership firm carrying on business as forest contractors. The partners are Thakur Dan Singh and his son, Thakur Mohan Singh. The appeal relates to the assessment year 1958-59, for which the previous year is the financial year ending March 31, 1958. The business was originally carried on by a Hindu undivided family consisting of the aforesaid father and son. There was a total disruption of the family on March 22, 1956 and on the same day the separated members of the family constituted a partnership firm under the name and style of Messrs. D. S. Bist and Sons. The business was taken over as a running concern by the firm. At the time when the business was owned by the family, it included three trucks. On account of depreciation allowed in earlier years the written down value of two trucks came to nil in the assessment year 1952-53. As regards the third truck, according to what is stated in the judgment of the High Court the written down value stood reduced to nil by the date of disruption of the Hindu undivided family. During the previous year ending March 31, 1958, relevant to the assessment year 1958-59, two trucks were sold for a total of Rupees 12,000/-, while the third truck was sold for Rs. 12,252/-.
(2.) During the assessment proceeding for the assessment year 1958-59, the Income-tax Officer held that the entire sum of Rs. 24,252/-, representing the sale proceeds of the three trucks, should be deemed to be profits of the previous year ending March 31, 1958 by virtue of the second proviso to S. 10 (2) (vii) of the Indian Income-tax Act, 1922, and he included that amount in the total income of the appellant. Before the Appellate Assistant Commissioner the appellant contended that as no depreciation was allowed to the appellant in respect of the three trucks no question arose of computing any profit in its hands, but the contention was rejected. The appellant was unsuccessful before the Income-tax Appellate Tribunal also. At the instance of the appellant, a reference was made to the High Court of Delhi. The High Court took the view that inasmuch as the partners of the appellants were the same individuals who were members of the Hindu undivided family and as the business was taken over as a running concern by the appellant from the family "there was merely a change in the style and nature of the Hindu undivided family on March 22, 1956". In the opinion of the High Court the original cost of the trucks to the appellant would be the same as it was to the Hindu undivided family and it rejected the contention that the original cost of the three trucks in the hands of the appellant must be taken as nil. In the result, the High Court affirmed that the sum of Rs. 24,252/- was taxable in the hands of the appellant by virtue of the second proviso to Section 10 (2) (vii).
(3.) It appears from the judgment of the High Court that the written down value of the three trucks was exhausted while they were still the assets of the Hindu undivided family business, the written down value of two trucks having been exhausted in the assessment year 1952-53 and that of the third truck having been exhausted in the assessment year 1956-57. Accordingly, when the business was taken over by the appellant the written down value of the three trucks was nil. In defining the expression "written down value" S. 10 (5) (b) declares that in the case of assets acquired before the previous year the written down value means "the actual cost of the assessee less all depreciation actually allowed to him under the Act." It is urged on behalf of the appellant that the actual cost to the appellant of the three trucks was nil inasmuch as the written down value had already been exhausted when the business was taken over by the appellant. It is urged that as no depreciation could possibly have been allowed to the appellant, no question arises of applying the second proviso to S. 10 (2) (vii). Now, in enacting the second proviso to Section 10 (2) (vii) the Legislature sought to recover back from the assessee the benefit allowed to him by way of depreciation allowance earlier, and it did so by imposing a balancing charge on the excess of the sale price over the written down value to the extent of the total depreciation allowance granted to the assessees in the past. In the present case, the appellant could not have been allowed any depreciation allowance for the reason that from the outset when the three trucks became its property, the written down value was nil. No question can arise of imposing a balancing charge under the second proviso to S. 10 (2) (vii).;