1965 (2) TMI 120 - HC - Income Tax

Summary

Issues:
1. Interpretation of provisions under section 10(2)(vii) of the Income-tax Act, 1922.
2. Determination of written down value for assets acquired before the previous year.
3. Calculation of balancing charge under section 10(2)(vii) based on depreciation allowed.

Analysis:
The case involved a dispute under section 66(2) of the Income-tax Act, 1922, regarding the addition of Rs. 10,000 to the profits from the sale of three lorries for the assessment year 1949-50. The Income-tax Officer computed the profits under the second proviso to section 10(2)(vii) at Rs. 19,728, based on the written down value of the lorries. However, the written down value was determined using an estimated initial cost without actual depreciation allowances for the relevant years.

The Appellate Assistant Commissioner upheld the addition, but the Income-tax Appellate Tribunal reduced the estimated income and profit under section 10(2)(vii) to Rs. 10,000. The main contention was whether the Income-tax Officer could compute the written down value without actual depreciation allowances in earlier years.

The court analyzed the provisions of section 10(5)(b) which define the written down value as the actual cost less depreciation actually allowed. It emphasized that the written down value for assets acquired before the previous year can only be determined based on actual depreciation allowed in earlier assessment years.

The court held that if no actual depreciation was allowed in prior years, the Income-tax Officer could not estimate the written down value based on an estimated initial cost. The provision for a balancing charge under section 10(2)(vii) only applies when actual depreciation has been allowed. In this case, only the depreciation of Rs. 8,860 for eight trucks was actually allowed in the relevant years, and this amount should be considered for computing the excess profit.

Therefore, the court concluded that only actual depreciation allowed should be considered for determining the written down value and calculating the excess under the second proviso to section 10(2)(vii) of the Act. The question was answered accordingly, and no costs were awarded, with the counsel's fee assessed at Rs. 200.