- (1.) This is reference by the Income-tax Commissioner under Section 66 (2) of the Income Act (XI of 1922) and the main question that arises for consideration relates to the allowance to be made on account of depreciation of certain buildings, machinery etc., in computing the taxable profits of a certain ;Business;. The answer to this question depends on the true interpretation of Section 10(2) (vi) and Section 26(2) of the Act. Section 10 (2) (vi) provides that in computing profits or gains of any business for the purposes of income-tax allowance shall be made ;in respect of depreciation of such buildings, machinery, plant, or furniture being the property of the assessee, a sum equivalent to such percentage on the original cost thereof to the assessee as may in any case or class of cases be prescribed.; Section 26 (2) enacts that ;where at the time of making an assessment under Section 23, it is found that the person carrying on any business, profession or vocation has been succeeded in such capacity by another person, the assessment shall be made on such person succeeding, as if he had been carrying on the business, profession or vocation throughout the previous year, and as if he had received the whole of the profits for that year.
(2.) The reference arises under the following circumstances :- An order for the winding-up of the Union Indian Sugar Mills Company Limited, Cawnpore, (hereinafter referred to as the Mills), which carried on an extensive business, was made on a creditors petition on May 28, 1926. Within a few months of this order, viz., on the 15th of September, 1926, certain persons including one L. Kamlapat entered into a partnership with a view to take over and run the Mills which had gone into liquidation. This partnership was styled as the firm of Kamlapat Moti Lal (hereinafter referred to as the assessee).
(3.) On the 22nd of November 1926, the assessee filed an application in this court embodying alternative proposals to take a mortgage of the Mills or to purchase the same. The proposals embodied in the petition were as follows :- That the applicant is willing to advance a sum of Rs. 10 lakhs to the above Company in liquidation on the terms annexed herewith and is also prepared to purchase it for rupees eleven lakhs fifty thousand on the conditions mentioned therein. 1. Deposit of Rs. 1,50,000 today and Rs. 8,50,000 within a month of this date, which should be paid to creditors as early as possible, the balance, if any, after paying the legal debts to be returned to us. 2. The company to be mortgaged to us at 9 per cent compound interest with 6 monthly rests. 3. We to be the managing agents for ten years even if mortgage paid off earlier, and to get all the advantages which the present managing director enjoys and to get 5 per cent commission on net profits only. 4. The mortgage with interest to be paid off first and then the shareholders to get the profit. 5. We to provide entire working capital against the goods of the Company at 8 percent per annum. 6. The Company to be handed over to us as soon as we deposit the entire money. 7. The consent of the shareholders to be obtained to the above scheme. 8. In case the shareholders do not accept the scheme, we are willing to purchase the Company at Rs. 11,50,000. (Sd.) KAMLAPAT. (Sd.) RAMAKANT MALAVIYA Vakil for L. Kamlapat.;