1987 (1) TMI 45 - HC - Income Tax

Summary

Issues: The judgment involves the interpretation of section 41(2) of the Income-tax Act in a case where assets were transferred pursuant to an order under section 394(2) of the Companies Act, 1956.

Issue 1: Jurisdiction of Tribunal to Consider Section 41(2) Application
The Tribunal was questioned on whether it had the jurisdiction to consider the application of section 41(2) in an appeal against the second order of the Appellate Assistant Commissioner, despite no appeal being filed against the first order. The Appellate Assistant Commissioner directed the Income-tax Officer to compute the profit under section 41(2) in accordance with the provisions of the Income-tax Act and rules made thereunder. The Tribunal held that there was no sale of assets due to transfer under section 394(2) of the Companies Act, thus affecting the computation of profit under section 41(2).

Issue 2: Correct Interpretation of Appellate Assistant Commissioner's Order
The second issue revolved around the correct interpretation of the order of the first Appellate Assistant Commissioner. The Appellate Assistant Commissioner had directed the Income-tax Officer to recompute the profit under section 41(2) in accordance with the law and rules, emphasizing that only the initial depreciation allowed should be deducted from the cost for computing the profit under section 41(2).

Decision and Rationale
The High Court held that the order of the Appellate Assistant Commissioner directing the Income-tax Officer to recompute the profit under section 41(2) was final and unchallenged by the assessee. The subsequent assessment by the Income-tax Officer was in compliance with this direction, making the order res judicata. Therefore, the Tribunal was not justified in interfering with the final order of the Appellate Assistant Commissioner regarding the applicability of section 41(2). The Court cited the principle established in ITAT v. S. C. Cambatta & Co. Ltd. [1956] 29 ITR 118 (Bom) to support this conclusion. Consequently, questions 1 and 2 were answered in the negative, in favor of the Revenue and against the assessee, rendering the consideration of question 3 unnecessary. The parties were directed to bear their respective costs in the case, and a copy of the judgment was to be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.