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Issues Involved:
1. Entitlement to depreciation on assets transferred by the Government. 2. Admissibility of deduction for contribution to the insurance fund. Issue-Wise Detailed Analysis: 1. Entitlement to Depreciation on Assets Transferred by the Government: The primary issue was whether the assessee, a State Government undertaking, is entitled to depreciation on assets transferred by the Government despite not being the legal owner. The Income-tax Officer disallowed the depreciation claims for the assessment years 1973-74 and 1974-75, arguing that the assessee had not become a legal owner as per the Transfer of Property Act and the Indian Registration Act. However, the Appellate Assistant Commissioner allowed the depreciation, referencing a Tribunal decision in a similar case. The Tribunal upheld this decision, considering provisions in section 2 of the Government Grants Act and section 53A of the Transfer of Property Act, confirming the assessee as the owner for depreciation purposes. The court cited CIT v. Tamil Nadu Small Industries Development Corporation Ltd., affirming that "section 2 of the Government Grants Act, 1895, shows that the term 'other transfer' used in the section will take in all forms of transfer of lands or interest therein made by the Government for consideration." Thus, the court answered in the affirmative, supporting the Tribunal's decision and against the Department. 2. Admissibility of Deduction for Contribution to the Insurance Fund: The second issue was whether the sum of Rs. 7,76,205 contributed to the insurance fund for the assessment year 1974-75 is an admissible deduction. The Income-tax Officer viewed this as a contingent liability, allowing only Rs. 3,095 as an actual payment. The Appellate Assistant Commissioner deleted this disallowance, stating that the insurance fund was a statutory requirement under section 94(3) of the Motor Vehicles Act, 1939, and the fund was already in existence. The Tribunal agreed with this conclusion. However, the Department argued that the fund was a reserve for contingent liabilities, not deductible as revenue expenditure. The court reviewed several precedents, including M. S. P. Senthilkumara Nadar and Sons v. CIT and Indian Molasses Co. (Pvt.) Ltd. v. CIT, which held that contingent liabilities are not deductible. The court also considered the Supreme Court's decision in Associated Power Co. Ltd. v. CIT, which clarified that amounts set apart for contingencies do not constitute deductible business expenditure. Consequently, the court answered in the negative, ruling in favor of the Department and against the assessee, concluding that the contribution to the insurance fund is not deductible as revenue expenditure. Conclusion: The court ruled affirmatively on the first issue, allowing depreciation on assets transferred by the Government, and negatively on the second issue, disallowing the deduction for the contribution to the insurance fund. The judgment provided a detailed analysis of statutory provisions and relevant case law to support its conclusions.
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