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Issues Involved:
1. Applicability of the second proviso to section 10(2)(vii) in computing income assessable under section 12 of the Indian Income-tax Act, 1922. Issue-Wise Detailed Analysis: 1. Applicability of the Second Proviso to Section 10(2)(vii) in Computing Income Assessable Under Section 12: The central issue in this case is whether the second proviso to section 10(2)(vii) of the Indian Income-tax Act, 1922, applies when computing income assessable under section 12 of the Act. The assessee, a private limited company, leased out a property and the income from this lease was assessed under section 12. Upon the sale of this property, the Income-tax Officer included a profit of Rs. 42,629 in the assessable income under the second proviso to section 10(2)(vii). However, the Appellate Assistant Commissioner and subsequently the Appellate Tribunal excluded this amount, leading to a reference to the High Court. The Advocate-General argued that the allowances under clauses (vi) and (via) and the balancing allowance under clause (vii) were intended to enable the assessee to recoup the entire capital cost. Therefore, if an assessee was entitled to allowances under section 12(3), they were also chargeable to profits under the second proviso to clause (vii). The Court, however, rejected this argument, emphasizing that the construction of a taxing statute must be based on its language, uninfluenced by the provision's reason. The Court noted that clause (vii) deals with the grant of an allowance, while the second proviso is a charging provision. The proviso does not lay down any condition for the grant of an allowance under the substantive clause and introduces a fiction by which the difference between the written-down value and the sale price is deemed to be a profit. The Supreme Court's interpretation in Commissioner of Income-tax v. National Syndicate and Commissioner of Income-tax v. Bipinchandra Maganlal clarified that the second proviso enacts a fiction converting what is essentially a capital return into a profit for assessment purposes. This fictional profit is included in the assessable income but does not alter its character as a capital return. The Court concluded that the expression "he shall be entitled to allowances in accordance with the provisions of clauses... and (vii) of sub-section (2) of section 10" in section 12(3) and (4) refers only to the allowance dealt with by clause (vii) and not to the liability of assessment of fictional profits under the second proviso. The absence of a specific provision for fictional profits in section 12 further supports this conclusion. Conclusion: The High Court held that the second proviso to section 10(2)(vii) does not apply in computing the income, profits, and gains of an assessee under section 12. The assessee was entitled to the costs of the reference, with counsel's fee fixed at Rs. 150. Order: The Court answered the question in favor of the assessee, stating that the second proviso to section 10(2)(vii) has no applicability in computing the income, profits, and gains under section 12.
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