1965 (3) TMI 84 - HC - Income Tax

Summary

Issues:
1. Interpretation of obsolescence allowance under Section 10(2)(vii) of the Income-tax Act.
2. Disallowance of obsolescence allowance due to lack of written off amount in books of account.
3. Requirement of maintaining specific set of accounts for claiming obsolescence allowance.
4. Misconstrued scope of Section 10(2)(vii) by the Tribunal.

Interpretation of Obsolescence Allowance:
The judgment addresses the computation of profits and gains of a business, specifically focusing on obsolescence allowance as per Section 10(2)(vii) of the Income-tax Act. The case involves the assessee, operating a bus transport business, claiming obsolescence allowance for condemned vehicles. The Income-tax Officer estimated scrap value at 25% of the written down value, while the assessee claimed the full written down value. The Tribunal emphasized the requirement that the amount should be written off in the assessee's books for the allowance to be granted.

Disallowance Due to Lack of Written Off Amount:
The Appellate Assistant Commissioner and the Tribunal disallowed the obsolescence allowance, citing the absence of proper books of account and failure to write off the amount in such books. Despite the assessee maintaining a "buses valuation book" with relevant entries, the authorities contended that the absence of a day-book and ledger implied non-compliance with the proviso to Section 10(2)(vii).

Requirement of Specific Set of Accounts:
The judgment clarifies that the Income-tax law does not mandate a specific set of accounts for maintaining books. Section 13 allows the Income-tax Officer to compute income based on the method of accounting regularly employed by the assessee. The absence of a profit and loss account was raised as an issue by the department, but the court rejected this argument, emphasizing that the relevant entry in any maintained account should suffice for claiming the allowance.

Misconstrued Scope of Section 10(2)(vii):
The Tribunal's interpretation of the proviso to Section 10(2)(vii) was deemed incorrect by the court. The court held that the assessee, despite not maintaining all traditional accounts, had complied with the requirement by recording the condemned vehicles in the "buses valuation book." The court concluded that the assessee was entitled to the obsolescence allowance as granted by the Income-tax Officer, thereby answering the question in favor of the assessee.

Conclusion:
The judgment clarifies the interpretation of obsolescence allowance, the necessity of maintaining specific accounts, and the misconstrued scope of Section 10(2)(vii) by the Tribunal. It highlights that compliance with the proviso does not necessitate a particular set of accounts and that any maintained account reflecting the relevant entry should suffice for claiming the allowance.