P APPAVU PILLAI Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) ONE of the allowances which has to be taken into account in the computation of the profits and gains of a business is what is termed obsolescence allowance. Section 10(2)(vii) of the Income-tax Act specifies this allowance and the conditions under which it can be granted in these terms "In respect of any such building, machinery or plant which has been sold or discarded or demolished or destroyed, the amount by which the written down value thereof exceeds the amount for which the building, machinery or plant, as the case may be, is actually sold, or its scrap valueProvided that such amount is actually written off in the books of the assessee." *The assessee in this case was operating a bus transport business as sole proprietor from the 1st of April, 1948. For the periods ending with the 31st of March, 1949, 31st of March, 1950, and 31st of March, 1951, relevant to the assessment years 1949-50, 1950-51 and 1951-52, the assessee claimed this allowance, the sums in question being Rs. 14, 927, Rs. 3, 363 and Rs. 4, 309. It is stated that in these account years, five, three and five buses respectively were condemned, their scrap value being nil according to the assessee, the written down value of these vehicles during the years was claimed as the allowance under this head. The Income-tax Officer, however, estimated the scrap value at 25 per cent. of the written down value and allowed Rs. 7, 233, Rs. 1, 488 and Rs. 3, 231 during these years. The assessee appealed. What precisely were the grounds advanced by him in the appeals is not clear. But in the statement of the case, the Tribunal records that the assessee did not press any of these appeals. But the Appellate Assistant Commissioner took the view that the allowance granted under section 10(2)(vii) was improper and he accordingly directed the adding back of the allowance to the income.

(2.) THERE were further appeals to the Tribunal in which the legality of the action of the appellate authority in withdrawing the obsolescence allowance was questioned. The Tribunal held that in order to qualify for this allowance, it was mandatory that the sum in question should have been written off in the books of the assessee. The Tribunal was of the view that this requirement contained in the proviso to section 10(2)(vii) was intended by the legislature to restrict the relief only to cases where an assessee maintains regular books of account. The Tribunal thought that as the assessee never kept any accounts and his income having been returned on the basis of his own estimates, the allowance was rightly refusedIt is in these circumstances that the question"Whether the disallowance of the obsolescence allowance for the assessment years 1949-50, 1950-51 and 1951-52 is justified ?" *stands referred to usIt does not appear to be disputed as a question of fact that certain vehicles were in fact condemned as useless during the relevant account years. During the assessment proceedings, the assessee produced before the Income-tax Officer "daily collections and expenditure book, conductors' challans, trip sheets, tyre consumption stock book and other subsidiary books and vouchers for purchases and expenditure" *. The assessee also explained to the Income-tax Officer that he submitted his return by estimating the income at a flat rate per bus for the reason that a regular day-book and ledger had not been maintained.