Satish Chandra, J. - (1.) THE Upper Doab Sugar Mills Ltd., the assessee, is a public limited company. It does the business of manufacture and sale of sugar. THE question referred to us relates to the assessment year 1964-65.
(2.) DURING the accounting period relevant to this assessment year, which ended on 30th September, 1963, the assessee sold machinery worth Rs. 1,21,000. It also received Rs. 1,17,192 in settlement of insurance claim in respect of certain other machinery lost by fire. The ITO held that these receipts resulted in profit under Section 41(2) amounting to Rs. 1,10,302 and in capital gains amounting to Rs. 1,23,523, as against the assessee's computation of the capital gains at a little over Rs. 20,000. The case fell within the purview of Section 50(1) of the I.T. Act, 1961, and Section 50(2) thereof was not attracted. The claim of the assessee that it was entitled to exercise the option of treating the fair market value as cost of acquisition was rejected. The assessee went up in appeal. The AAC accepted the assessee's plea. He held that Section 50(2) read with Section 55(2)(ii) of the I.T. Act, 1961, was applicable, and these sections gave an option to the assessee to compute capital gains by adopting fair market value of the assets as on January 1, 1954. He accordingly directed the ITO to recompute the capital gains in the light of the provisions of Sections 50(2) and 55(2)(ii) and also in consonance with the previous assessment history. The ITO went up in appeal to the Tribunal, which upheld the view point of the AAC and dismissed the appeal.
(3.) AT the instance of the department the Tribunal has referred the following question of law for the opinion of this court: "Whether, on the facts and in the circumstances of the case, in determining the capital gains arising to the assessee in the accounting year relevant to the assessment year 1964-65, provisions of Section 50(2) and Section 55(2)(ii) were applicable ?" On facts admitted, the position appears to be that the machinery which was sold or lost by fire was acquired by the assessee-company prior to January 1, 1954. The assessee-company had obtained depreciation allowance in respect of these assets.;